The financial services industry is between the proverbial rocks these days. Chastised by Washington politicians and considered untrustworthy by most outside the Beltway, the banks are getting hammered these days. But they also have a talent for setting themselves up as targets.
Take, for example, the Credit Card Accountability, Responsibility and Disclosure (CARD) Act that went into effect last month. It was touted as extending needed protections for consumers by placing restrictions on how banks raise card interest rates, impose late fees and account for payments made on card balances.
Sure, until you discover Congress screwed up and didnít include small-business cards in the protections. Banks, of course, could improve their image by choosing to extend those protections to small-business card-holders anyway, but donít bet on it.
Just like consumers, dealers have been struggling with rising interest rates and bank fees, including higher costs of accepting credit and debit cards in dealerships. As banks now look to make up the lost revenue from consumer cards because of the new law, many expect small-business cards to become targets for beefed up fees, interest rates and other revenue-raising billing tactics. After all, a very lucrative income stream for banks is now shut off, so banks could easily look to small businesses to make up that revenue.
Just last week, banks were hit again. In passing the health care bill, Democrats in Congress also cut off billions of dollars in subsidies to banks making federally backed student loans. Now the government will start lending directly to student, eliminating banks as the middlemen and chopping another revenue stream for lenders. And if thatís not enough, Congress is still working on a broad financial reform bill thatís seems destined to squeeze banks again.
No wonder the Financial Services Roundtable, which represents the 150 largest banks and insurance companies, has decided to start an ďimage-improvement campaign aimed at showing the financial industry as trustworthy and a positive force,Ē according to a recent Bloomberg News report. The PR campaign is aimed at communicating directly with the American people, explains the Roundtable.
Some say all this turbulence for banks is deserved; others cry government overreach. Itís likely some of each. But one thing seems indisputable: The much-needed end to the current credit crisis is not going to happen as long as banks face such uncertainty and turmoil. And until credit flows again, our industry will remain depressed. So it begs a couple of timely questions for today:
1. Have we reached a point where we, as an industry, should be pushing for 100 percent direct government lending (like student loans) through the Small Business Administration for such needs as floorplanning and even consumer loans for durable hard goods purchases?
2. Have we reached a point where we, as an industry, should join the call for expanding the limits on business loans that the nationís credit unions are currently permitted to make?