The Federal Deposit Insurance Corp.’s main purpose is to safeguard consumers against loss in case of a bank going belly up. So you’d think the FDIC would be used to being in the bad news business.

It turns out, though, that there’s bad news – your bank sunk like the Titanic last night – and then there’s really bad news. What could be worse than being linked to bank failure? Being likened to Comcast.

The FDIC’s in a snit because about 100 banks around the country decided to start acting like the phone company, the landscaper and American Airlines. That is, they decided to start charging their customers a fee to recover the cost of their deposit insurance premiums.

Look at your cable television bill. You’re probably going to see a “regulatory recovery fee,” a “subscriber line charge fee,” and more, in addition to your base monthly cost. When your landscaper sends you the lawn-mowing invoice, look for the “fuel recovery charge” that’s been added. Get on an airplane, and the ticket price is just the appetizer in the great Fee Buffet coming your way.

So it shouldn’t be surprising when banks by the score decided that their own customers should shoulder the costs of FDIC insurance on their accounts, and started adding an “FDIC Insurance Fee” to the bank statements. And when those customers complained, many of the bankers told them their hands were tied, and suggested they take it up with the FDIC.They did.

As it turns out, the FDIC knows the distinction between bad news and bad publicity. That’s why last week it came down on the banking industry hard, issuing a stern warning about banks telling customers there’s an FDIC insurance fee.

Please notice the wording of that last clause. The FDIC didn’t tell the banks not to charge their customers for the insurance. They just told them to stop telling depositors about it.

Pay As You Go

The average consumer naturally assumes that it’s taxpayer money behind the FDIC. They don’t understand that the agency is funded entirely by premium assessments against insured depository institutions. Those premiums went up in 2009, when to stem consumer panic caused by the Great Financial Meltdown, the FDIC raised its coverage amount from $100,000 per account to $250,000.

Moreover, banks that are in the shakiest position (and therefore with the least amount of cash to pay their deposit insurer) get dinged with a higher premium assessment based on their higher risk profile.

So banks both good and bad have been getting whaled on for more money from the FDIC, and some have had enough of absorbing those costs. They’re paying them to protect their customers, so they want their customers to pick up the tab.

Banks are businesses. And in business, if customers aren’t covering the expenses of the enterprise, plus a little more, that business is going to go kaput. 

The FDIC’s formal policy is that, “Under the Federal Deposit Insurance Act, the FDIC charges [insured depository institutions] risk-based assessments to cover the costs of providing deposit insurance. How an institution decides to cover these costs, either from general revenues or by passing the costs on to customers through fees, is a business decision of the depository institution.”

Indeed, until last week, if a bank was going to recoup its costs through fees, the FDIC explicitly required it to tell customers, and to peg the fees to what it was actually being charged. Some institutions added the fees to all deposit accounts. Others thought it more prudent to apply them just to business accounts. Bank of America, for instance, charges it to at least some of its business depositors. “The FDIC assessment may include deposit insurance charges,” BoA discloses on its website. “We generally calculate the FDIC assessment using the same calculation method used by the FDIC.” It points out that while the rate varies, it may change without notice and is listed on the statement.

Although it wouldn’t name banks that charged the fees, the FDIC said some bankers were simply calling these “FDIC Fees.” The agency said it was fielding calls from irate consumers, who believed the FDIC was forcing banks to collect the premiums directly from depositors.

Flip-Flopped Feds

The banks were simply following guidance that the FDIC has had in place for nearly two decades. Bankers were, however, getting more aggressive in taking the agency up on its word that it wanted banks to put the fee issue front and center with consumers. And suddenly, the FDIC didn’t want to be in the spotlight so much.

The insurer is justifying its latest change by trotting out the red herring of safety and soundness. Banks are levied premiums based, in part, on their supervisory ratings by the agency; the worse the rating, the higher the premium. And, of course, if banks tell customers how much they’re charging (as the FDIC previously insisted they do), then clever people could “allow someone to calculate the [bank’s] supervisory rating or deposit insurance assessment risk assignment,” and that’s against the rules of confidentiality, the FDIC asserts.

“For these reasons, the FDIC encourages institutions to review fees charged to customers and to refrain from identifying specific fees as ‘deposit insurance fees,’ ‘FDIC fees,’ or other similarly described fees and from referring customers to the FDIC for an explanation of the fee,” the agency ordered in its July 9 Financial Institutions Letter.

It seems unlikely that the average customer is going to figure out a bank’s supervisory rating from an FDIC fee. And more savvy investors get a wealth of more pertinent information from both the FDIC’s own website and from public bank disclosures.

No, the FDIC actions aren’t consistent with good consumer transparency. Banks remain free to recover the money from their customers. They’ve just got to keep the FDIC’s name out of it. Because after all, pushing bankers around is one thing. Getting pushed around by livid consumers – well, that’s just really bad news the FDIC doesn’t want to have to deal with.