Land of the Fee
In the days following Norwest Corp.'s announcement that it plans to merge with San Francisco-based Wells Fargo, local headlines bemoaned the loss of a local institution. "Norwest's image has been warmer, fuzzier than Wells'," asserted the Pioneer Press, while the Star Tribune questioned whether the new conglomerate would "keep its focus on local lending--and giving."
Norwest may indeed have a better public image than its corporate fiancé, concedes Jordan Ash, loan counseling director of the community group ACORN. But the state's largest commercial bank has hardly been cuddly enough to merit mourning, he contends. To hear Ash and other consumer advocates here and on the West Coast tell it, the $34 billion merger joins two banks that have led the industry's move toward extracting new and exorbitant fees from customers. "We've already had a lot of concerns about Norwest's policies and practices, and we think the merger is just going to make those problems worse--especially for low- and moderate-income people," says Ash.
Norwest insists such worries are misplaced. Vice President of Corporate Communications Teresa Morrow says both Norwest and Wells Fargo have solid track records in lending to small businesses and have received outstanding ratings for their compliance with the federal Community Reinvestment Act, a law mandating that banks make loans throughout the communities where they're located. The act was intended to outlaw the practice of "redlining," or banks' refusal to make loans or open branches in low-income neighborhoods.
Ash acknowledges that both banks have complied with the act. But, he argues, they've also pioneered a new form of redlining--creating a fee structure that hits low-income customers the hardest. ACORN, a nonprofit made up of low- and moderate-income families, claims that in recent years Norwest has appealed to consumers by reducing or eliminating maintenance fees for checking and savings accounts, while at the same time ratcheting up most other fees for the same accounts.
By way of illustration, Ash cites one of the group's members, a woman who supports herself by working at a temporary-help firm. Several months ago, Ash says, the woman bounced a check on her Norwest account, then wrote several more until her overdraft notice arrived in the mail. Each bounced check meant a $21 fee, and by the time she deposited her next paycheck, she owed Norwest a couple of hundred dollars. By the end of the following week she'd bounced several more checks; after a month, the woman owed the bank half of each paycheck.
ACORN contends that Norwest actually pushes its customers to bounce checks because the resulting fees are so profitable. Norwest is the only bank in the state with a policy of paying an account holder's largest check first: If a customer has a balance of $200, and checks for $300, $10, and $5 roll in on the same day, fees will total $63, versus $21 if the bank were to leave the largest check for last.
"Ironically, low-income consumers are first lured into accounts by such gimmicks as 'unbelievably free checking' and then are forced out of the market by high hidden fees," ACORN concluded in a 1996 report titled "Charging Fees to the Nth Degree: Norwest, Profits, and the Community." "Banks have now recognized low-income communities as a source of short-term profits from consumer fees." ACORN cites industry calculations according to which each bounced check costs Norwest just $2.68. The rest is profit--$67 million a year for Norwest as a whole, $20 million of that from Twin Cities branches, according to the report.
All of which means that when Norwest quietly announced recently that it was raising its bounced-check fee to $25--the same amount as Wells Fargo's overdraft charge--Ash distinctly heard a shoe drop. In addition to having high bounced-check fees, he points out, Wells Fargo charges $5.50 a month for maintaining a checking account unless customers can keep up a $1,000 minimum balance; it also charges fees for using debit cards, for coming into the bank and speaking to a human teller, and even for doing business at Wells Fargo's own teller machines. Customers are allowed three to six phone calls to the bank each month, after which they're charged $1.50 per call whether they talk to a live human or battle their way through the computer's bewildering Touch-Tone options.
Ash says he wouldn't be surprised if, after the bigger bank's stagecoach logo begins appearing around town, Norwest account holders found themselves facing some of the same controversial fees. Norwest's Morrow says no decisions have been made regarding what fees will be charged or what products will be offered by the merged company. The answer might depend on whether a customer banks in Minnesota or California, she adds: "Decisions will continue to be made on a local basis."
Some Wells Fargo customers aren't convinced. When the bank took over Arizona-based First Interstate in 1995, they charge, it promised not to alter many of the institution's more popular services. But customers who'd signed up for First Interstate's free-checking accounts soon found themselves paying a monthly fee, and last month Wells Fargo notified First Interstate's senior-citizen customers that it would no longer honor their free-checking arrangements.
That record is one reason that the West Coast regional office of Consumers Union, the nonprofit that publishes Consumer Reports, is demanding guarantees in writing this time. The group recently urged Federal Reserve Chairman Alan Greenspan to make permission for the merger contingent on several consumer-protection provisions. The group wants Greenspan to call a moratorium on fee hikes, new fees, and minimum-balance requirements. It has also asked that a significant portion of the overhead-costs savings the merged banks predict be dedicated to services and credit for low-income consumers.
"The Fed ought to slow down and take a look at these mergers," says Gail Hillebrand, head of the Consumers Union office's credit and finance team. "The banks are saying, 'Trust us, it'll be good for consumers.' But we want some guarantees." The group doesn't expect that Greenspan will impose a host of conditions on the Norwest deal, she says, "but it might cause them to be a little more careful in looking at this merger."
States can't regulate nationally chartered banks, but ACORN's Ash says Minnesota could steer corporate policies by imposing conditions on banks that keep state accounts. During the Legislature's last session, for instance, bills sponsored by Minneapolis Democrats Karen Clark in the House of Representatives and Linda Higgins in the Senate would have banned state accounts at banks that refuse to limit ATM and other fees. Both bills stalled.
In the end, the marketplace may provide the answer for consumers worried about fees and megamergers. Kevin Chandler, president of the Minnesota Credit Union Network, says local credit unions, whose fees are often lower than the larger banks, have been hearing from new customers turned off by the Norwest-Wells Fargo deal and other recent bank mergers. "Individually, these big banks have made a career out of sticking it to people with creative and extraordinary fees," he says. "People are coming in saying, 'I don't want to be with Wells Fargo, I don't want to be with US Bank anymore. I want my money to stay in the community.'
"When two elephants fight, it's the grass that gets trampled," adds Chandler. "We think they're slitting their own throats. And we're loving it."
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