Service, Service Fees, and Compliance

In a recent speech to the Exchequer Club in Washington, D.C., Acting Comptroller of the Currency Julie Williams discussed her concerns about how banks are perceived as service providers and the impact that public perception may have on risk.

Williams built her thesis around reputation risk, which the OCC defines as "the current and prospective impact on earnings and capital arising from negative public opinion that may expose the institution to litigation, financial loss, or a decline in its customer base. Reputation risk requires bankers to exercise an abundance of caution in dealing with customers and the community."

Williams explained that "caution" means that bankers should weigh their business decisions in the context of customer reactions. Whether an action or program is legal should not be the sole basis for making business decisions. She stated that "customer perception is the relevant reality."

When customers perceive that a price, a practice, or a product is unfair or unjustified, they get angry. Banks may face customer backlash for legal decisions that ignore customer concerns and perceptions. Service fees, Williams believes, is the practice most responsible for the gradual drop in customer satisfaction with their banks. Consumers have identified an increase in the numbers of fees, and an increase in the amount of fees.

Most consumers claim that they learn about a fee by incurring it. This makes them doubly angry. They object to the amount as well as to the nasty surprise. Credit card member fees, credit card late fees, ATM fees, and safe deposit rental amounts seem legitimate to bankers. And they are, in fact, legal fees. However to consumers (who often do read and review their statements) these fees seem unreasonable and unfair.

Consumers question the amounts of the fees. Most consumers do not appreciate that some fees are designed to be deterrents, such as overdraft fees. Although the $25 charge imposed by the grocery store for a returned check may never be questioned, customers don't see the justification in a similar fee imposed by their bank. They don't see the bounced check as a breach of contract (or the law). They see the checking account as a service which the bank runs for them and they expect to pay no more than what the service is worth to the customer.

Consumers also question the techniques for imposing the fees. They resent being treated as captive customers simply because the bank "has" their account. Many consumers would consider moving their accounts if they had fore-knowledge of fee increases or new fees.

Williams observed that in many cases, fees have been imposed or raised without taking into account their effect on public opinion or the trade-off between short-term income and long-term reputation risk. Williams recommends "greater judiciousness and discretion" in imposing fees. However, she sees the greater challenge as improving banks' overall reputation for customer service. When banks are recognized as outstanding service providers, customers will more readily accept the costs of the services that they want - and get.

Williams' recommendations echo the principles of CRA:
Work to identify and develop new customers and new markets with new business opportunities
Use innovative and non-traditional approaches
Improve communications to customers and communities to let them know what banks are doing for them
Build customer relationships based on trust
Serve customers' evolving financial needs over the course of their lives.

These recommendations not only contain the principles of CRA; they are a recipe for the prevention of future regulation. Only by being pro-active in customer service will banks prevent more compliance legislation.

ACTION STEPS

Brief management on the importance of customer perception in business decisions. Use Julie William's speech as a hand-out. Let her take the heat!
Identify customer service fees that your bank charges that may seem unfair to customers. Find out whether the bank has received any customer complaints about these fees.
Pull together a working group to discuss bank policies and fees as seen by the customer. The group should include retail and marketing staff. Identify ways to explain the fees to customers. Develop a policy on voluntary disclosures for new service fees.
Put CRA and the service fee issue together. They are both about bank image, customer relationships, and customer service. Look for ways to use your CRA program as a resource for information about bank image and customer perceptions.