Actual finance blog

Of all the bank fees that customers love to hate, overdraft charges on checking accounts have to be near the top. The government’s new consumer protection agency appears to agree.

The Consumer Financial Protection Bureau said Wednesday that it will investigate overdraft fees, including how they are marketed and explained to customers. The agency said the probe could result in additional rules, perhaps even lawsuits.

Overdraft fees are charged by banks when customers try to spend more money than they have in an account. Banks will allow the transaction, then charge the customer a penalty of as much as $35.

“We’ve heard many stories about the $40 cup of coffee,” the agency’s director, Richard Cordray, told reporters and representatives from banks and consumer groups.

Cordray and representatives from four consumer advocacy groups said that the overdraft fees hurt the people who can least afford them because poorer customers are more likely to drain their checking accounts to close to zero.

Since the 2008 financial crisis, the government has clamped down on bank practices that it considers unfair, such as marketing credit cards to teenagers. Banks have complained some of the government’s moves have been too intrusive.

In 2010, the Federal Reserve barred banks from automatically enrolling customers in so-called overdraft protection programs for debit card or ATM transactions. Without overdraft protection, a transaction is declined if the customer can’t cover it.

The rule did not apply to checks, online bill payments or recurring debits, such as having the monthly cable bill automatically sent to your debit card. It also did not limit how much banks can charge for the service.

Banks have responded by marketing overdraft protection aggressively. Some told customers that opting out of overdraft protection could prevent them from making everyday transactions, including “medical or health emergencies,” according to research published last year by the Center for Responsible Lending, a consumer group that opposes overdraft fees.

Cordray said the problem is not just the fees but that banks often don’t explain them clearly. One bank, which he did not name, required customers to visit three different websites and scroll through 50 pages of dense text just to get an explanation, he said.

Cordray praised banks for finding ways to help customers avoid the fees, such as not charging overdrafts for purchases of less than $5 or giving customers 24 hours to add more money to an account payday loans direct lenders.

Representatives of consumer groups who appeared with Cordray said customers would rather have their cards declined than be charged the fee. A representative of Citigroup, one of the country’s largest banks, said customers prefer to avoid the embarrassment.

Andrew Rowe, a senior vice president from Bank of America, said the bank has started giving customers “clarity statements” to explain fees and sending them text messages when their accounts drop below $25. Last month, Bank of America sent 20 million such texts to 8 million customers, Rowe said.

Bank of America was a leader in trimming overdraft fees beginning in 2009, when Brian Moynihan, now the CEO, was running the bank’s consumer banking unit. At the time, the bank owed $45 billion in government bailout loans. It has since paid the money back.

Banks have also drawn criticism for a practice known as “re-ordering” _ when a bank takes all the purchases a customer makes in a single day and subtracts the biggest ones from the customer’s account first. Banks say it helps customers pay their most important bills first, like mortgages and student loans. Consumer groups say it’s a way to rake in fees.

The practice has been challenged in class-action lawsuits around the country. Bank of America settled one case for $410 million last July. JPMorgan Chase agreed this month to pay $110 million to settle similar claims.

The CFPB, born out of outrage over the financial crisis and the banking practices that led to it, said it would focus on four areas: re-ordering, missing or confusing information, misleading marketing and disproportionate impact on low-income and young customers.

According to a 2008 study by the Federal Deposit Insurance Corp., 9 percent of checking accounts incur 84 percent of overdraft fees. The study found that nearly half of younger cardholders paid the fees.

The CFPB also is requesting public input on the idea of a “penalty fee box” _ a disclosure on checking account statements that would highlight overdrafts and related fees.

The agency said it plans to issue a report by the end of the year.

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Follow Daniel Wagner at www.twitter.com/wagnerreports.

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At first glance, there’s nothing the least bit unusual about the routine followed by Ben Griswold on any given workday.

He analyzes markets, crafts investment strategies and performs various other responsibilities assigned him by Kennedy Capital Management, a boutique Creve Coeur financial services firm.

All fairly normal in the world of finance, were it not for this:

Griswold is an intern.

The hand-wringing over the brain drain that siphons the best and brightest from St. Louis to New York, Chicago, San Francisco and other exotic locales (Minneapolis, anyone?) has gnarled a fair share of economic development knuckles in these precincts.

But there may be an antidote to St. Louis bidding farewell each Spring to newly-minted professionals that head for brighter lights the ink barely dry on diplomas from St. Louis University, Washington University and the University of Missouri-St. Louis (to name just a few).

It can be found in the paid internship programs offered by Kennedy Capital and its larger counterpart, Town & Country-based ScottTrade - two businesses that provide college students with far more than a single semester or a summer break to absorb the intricacies of the trade.

Companies that offer extended internships are the exception rather than the rule, said Peggy Gilbertson, intern coordinator at UMSL.

But the role of interns, she added, have thankfully evolved whether a college student is on the job for three months or three years.

“I’m definitely part of a team,” said UMSL student Ceri (cq.) Berble, an intern in the ScottTrade public relations department. “I don’t get coffee for anyone. I sit in team meetings and my ideas are heard. I’m not intimidated.”

The interns at both Kennedy Capital (12 currently) and ScottTrade (428 in company branches nationwide) further shatter the stereotype of college students relegated to menial tasks with zero professional value.

“I’d be embarrassed to ask our interns” to make coffee, said Caroline Dybala, the internship program manager at ScottTrade.

Basic economics guided Kennedy Capital co-founder Jerry Kennedy’s decision 20 years ago to hire interns for terms of as long as 36 months.

From a business perspective it makes little sense to show interns the exit just at the exact moment they were getting comfortable with the quotidian of institutional finance.

“There’s a lot to learn at the start,” said Alex Mosman, the manager of the intern cooperative learning program. “And if you only had a summer or a semester you’d learn the basics and then leave.”

A fair number of the 185 sophomores and juniors hired by Kennedy Capital out of SLU, WashU, UMSL and other schools over the past two decades have in fact stuck around a lot more than three years.

In fact, 25 percent of the full-time employees at the company’s Olive Boulevard headquarters are former interns, Mosman and the firm’s chief financial officer included.

The same is true at ScottTrade which moves between 50-60 percent of its interns into permanent positions.

ScottTrade launched its extended length internship 12 years ago as a farm system to accommodate job growth at its network of branch offices, said Caroline Dybala, the internship program manager.

Dybala knows first hand the benefit of the long-term internship.

She arrived as a ScottTrade intern in 2000 with a goal of working in human resources but uncertain about where she might fit into the field following graduation from xxxx.

Her six months at ScottTrade cleared the picture and paved the way for Dybala’s current position.

By encouraging college students to stay on the job longer than standard internships, the ScottTrade and Kennedy Capital programs support to the notion that an investment in the personal and professional of young employees is an investment in the community as well.

Kennedy Capital in fact estimates that at least 60 percent of its former interns have remained in St. Louis. (The numbers for ScottTrade are more difficult to track since its interns are scattered around the country.)

The first three months former intern Alex Mosman spent at Kennedy Capital in the capacity of 20-hour-a-week intern may have been “overwhelming.”

But he attributes a big part of steep learning curve to his invaluable interaction with the top company executives.

“You’re thrown into it right away,” said Mosman, now a full-time research associate and the manager of the firm’s intern cooperative learning program. “You’re sitting in on management meetings and having conversations with (the chief financial officer).”

Research director Michael Bertz notes that Kennedy interns as full members of the team are expected to interact with clients and do their share to bump up the firm’s bottom line.

Likewise at ScottTrade where Dybala says an intern is usually the company representative greeting customers that walk through the door of its branches.

Griswold’s tenure as a Kennedy Management intern will earn him him a valuable entry for the resume he’ll send to prospective employers following graduation next year from SLU with a bachelor’s degree in finance and a graduate degree in accounting.

As the head intern charged with coordinating the schedules of seven fellow undergrads in the finance department (four other interns serve in other Kennedy Capital departments) Griswold will bring supervisory experience to his first job out of college.

“I’m not saying I was a 100 percent proficient from day one. But I communicate here constantly with professionals and I won’t miss a beat wherever I go,” Griswold said.

The reluctance of companies large and small to hire untested graduates straight of college have long-since turned real-world internships into a pre-requisite for full-time employment.

The question facing St. Louis businesses is whether to make worthwhile internships available locally or open the door for top-drawer college students to look elsewhere.

For the answer, the local business community might want to consult Alex Mosman.

“You can leave St. Louis and take an internship somewhere else,” said Mosman. “But if you do that, you may be gone for good.”

QUOTE OF THE WEEK

“Don’t just always go out to lunch with, you know, a couple of your friends, but actually go out to lunch with people from other departments, from other companies, and explicitly address questions like, how do you see the industry changing? How do you do your job effectively? Is there anything I should learn from that in terms of how do I do my job effectively? Do you see interesting opportunities? And that’s not necessarily always a question of job transition. It can be. Those kinds of talking to other people, building those relationships, are, I think, the things that everyone needs to be doing.” - Reid Hoffman, co-author of LinkedIn and author of The Start-up of You.

Source: National Public Radio’s Morning Edition

BY THE NUMBERS

43 - Percentage of hiring managers who expressed concern the top talent in their organizations will voluntarily depart for other positions in 2012.

34 - Percentage of hiring managers working for companies that experienced voluntary turnover in 2011.

Source: Harris/CareerBuilder survey

FINAL WORD

“You know, it’s funny. I bet someone is going to listen to this and say, you know, if I went in to my boss at my workplace, and said, you know, I went out to lunch with this guy from another division, or another company entirely, and came up with this interesting idea, that they would say my boss doesn’t want to hear that.” - Morning Edition co-host Steve Inskeep’s response to Reid Hoffman’s observation.

“Well, then your boss is not really adapting to the modern world.” - Reid Hoffman

Source: National Public Radio’s Morning Edition

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If Mitt Romney is elected president, he will have to make some tough choices about what to do with his personal fortune.

In order to avoid conflicts of interest and satisfy ethics watchdogs, soon-to-be presidents often sell assets or relinquish control of their investments to a trustee.

Romney, who has spent the better part of a month answering questions about his massive investment portfolio, would be one of the wealthiest presidents in history.

The former Massachusetts governor has a few options.

He could put his investments in a government-approved blind trust, convert some or all of his assets to cash, or possibly take advantage of an obscure tax break for executive branch officials.

Blind trust: Romney is no stranger to the concept of blind trusts.

After becoming governor of Massachusetts, Romney created a trust managed by Boston lawyer Bradford Malt. That’s where most of his assets, estimated to be between $85 and $264 million, are today.

But between federally required disclosure forms and the tax returns released by his campaign, the contents of Romney’s trust are easily accessible and have been widely scrutinized by the media.

It’s now far from blind.

As president, Romney would likely have to dissolve his current trust and create a new one. And this one, approved by the Office of Government Ethics, would require a truly independent trustee.

"Federal ethics guidelines for blind trusts are extremely strict," said Robert Kelner, a partner at Covington & Burling who has advised candidates and appointees on ethics. "Typically they are much stricter than what you find at the state level."

Rich, Gingrich and crazy rich

If Romney establishes a new trust, his communication with the trustee would be extremely limited, and he would not be informed of changes to his portfolio.

"He might learn the overall performance of his portfolio," Kelner said. "But he would not know anything about its particular holdings."

It’s a popular tactic.

Bill Clinton, both Bushes and Ronald Reagan put their money into a blind trust.

President George W. Bush told CNN at the end of his second term that he had "no earthly idea" what had become of his assets.

"I met the trustees eight years ago and I haven’t talked to them since," Bush said.

Unlike his immediate predecessors, Barack Obama does not have a government-approved blind trust.

Most of his assets are invested in U.S. Treasury bonds and bills, mutual funds and education savings plans for his children — hardly the kind of assets that present conflicts of interest.

Establishing blind trusts is not just popular with presidents. Other wealthy executive branch appointees have followed suit — sometimes with a little unease. Hank Paulson, who left the top job at Goldman Sachs to become Treasury Secretary, was one of them.

"Have you heard the joke, how do you make a small fortune?" Paulson quipped in 2009. "Give a large fortune to someone in a blind trust."

For Romney, who made his money by making savvy investments, relinquishing control might be particularly difficult.

"You’re turning your assets over to someone who is essentially a stranger," said Kenneth Gross, a partner at Skadden Arps Slate Meagher & Flom. "I think some people would not be entirely happy with that situation."

The Romney campaign would not elaborate on the candidate’s plans for his wealth, but said in a statement that his "assets will be arranged in a manner that comports with all rules" should he become president.

Move to cash: Perhaps the simplest option would be for Romney to liquidate his holdings.

The Clintons converted their assets to cash in June 2007 as Hillary’s campaign for president entered its final stretch, according to the New York Times.

The family’s holdings had been in a blind trust, but — like Romney — those assets were disclosed in campaign filings required by the Federal Election Commission.

Instead of creating a new blind trust, the Clintons chose to liquidate.

Romney made $42.7 million in 2 years

There is a substantial downside to taking this route. The Clinton’s likely owed huge sums of money in capital gains.

A fire sale of Romney’s assets would likely create a similar tax burden.

It’s also possible Romney could choose to divest — or sell — a targeted group of assets that are likely to cause conflicts.

But that would be difficult considering the breadth of decisions the president makes, and the vast diversification of Romney’s holdings.

"Practically everything the president does could affect individual companies," Kelner said. "Romney might find that difficult to do."

A tax benefit? Members of the executive branch who have to sell specific assets to avoid conflicts of interest are sometimes granted what is called a "certificate of divestiture" by the Office of Government Ethics.

Obtaining the certificate allows appointees to divest while deferring the payment of capital gains, provided they invest the proceeds in an approved asset like a diversified mutual fund or government bond.

The provision is designed to incentivize wealthy individuals to accept posts in the executive branch without forcing them to take a tax hit.

A president has never applied for the tax break, but law experts consulted by CNNMoney said it is conceivable the Office of Government Ethics would grant one to a president with a portfolio like Romney’s.

"It would be unprecedented," Gross said. "But I don’t know why a president wouldn’t be entitled to the same deferral of tax if he felt there was a conflict."

The tax benefit for Romney would be huge.

"Oh my god," said Robert Willens, a tax expert and professor at Columbia Business School. "He’d be right in the sweet spot. This would save him millions or tens of millions." 

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The U.S. economy is growing at 2-3 percent but still faces big challenges to repair damage wrought by the financial crisis, Treasury Secretary Timothy Geithner said on Friday.

“I think if you look at the Fed’s forecast and the consensus of private forecasters, people are pretty clustered in that area but it is still dependent how the world unfolds. We’re still repairing the damage done by the financial crisis,” Geithner told the World Economic Forum.

“On top of that we face a more challenging world. We have a lot of challenges ahead in the United States.”

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Greece’s prime minister will hold new talks with representatives of the country’s private sector creditors on a crucial euro100 billion ($129 billion) debt writedown.

Lucas Papademos will meet late Thursday with Charles Dallara, managing director of the Institute of International Finance, a banking lobby, and Jean Lemierre, senior adviser to the chairman of French bank BNP Paribas.

Greece is hoping to conclude the negotiations by the end of this week, despite disagreements over the terms of the deal.

An IIF statement Wednesday said the goal is to agree on all outstanding legal and technical issues as soon as possible.

The private debt writedown is a vital part of a new bailout for Greece, which has been surviving on international rescue loans since May 2010.

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President Barack Obama planted his political flag in Florida on Thursday ahead of the state’s Jan. 31 Republican presidential primary, promising a fresh boost to the economy by making it easier for foreign tourists to travel to the U.S.

Obama sought his piece of Florida’s political spotlight with a high-profile appearance at Walt Disney World, where he announced initiatives aimed at making it easier for citizens of China and Brazil to visit the United States.

“America is open for business,” Obama declared against the backdrop of Disney’s Cinderella castle and picture-perfect blue skies. “We want to welcome you.”

From Florida, Obama headed to New York City for four glitzy campaign fundraisers, including an event at the famed Apollo Theater featuring performances by Al Green and India.Arie. Tickets to that fundraiser start at $100.

The president also was to attend a $35,800 per ticket fundraiser at the home of film director Spike Lee, and two small fundraisers at Daniel, an exclusive Manhattan restaurant. Tickets start at $5,000 for the first restaurant fundraiser and $15,000 for the second. Obama raised more than $220 million for his campaign and the Democratic National Committee through the end of 2011.

Beyond offering an opportunity to talk about the economy, Obama’s trip to Florida marked an attempt by the White House and his campaign to steal attention from Republicans vying for the GOP presidential nomination. In recent weeks Obama held a live video conference with Iowa voters during the Republican caucus, Vice President Joe Biden held a similar event with voters in New Hampshire on the night of the state’s first-in-the-nation primary and next week Obama will travel to Nevada, which follows Florida on the primary calendar.

Obama was greeted in the Orlando area by ads from GOP frontrunner Mitt Romney blaming the president for the state’s struggling economy. Romney, the former Massachusetts governor, could take a major step toward securing the Republican nomination with a win in Florida’s Jan. 31 primary contest.

“I have a simple question for you: Where are the jobs?” Romney wrote in an open letter to the president on Thursday running as an ad in the Tampa Bay Times. In a conference call with reporters, Romney said Obama was “speaking from Fantasyland.”

While Obama carried Florida in 2008, the state is a top target for Republicans in the November elections. Florida twice backed Republican George W. Bush, providing the decisive electoral votes in the cliffhanger 2000 election that was decided after a 36-day recount payday loan lenders.

Tourism is a key component to the economy in Florida, which has been battered by 10 percent unemployment and rampant home foreclosures.

The White House said more than 1 million U.S. jobs could be created over the next decade, according to industry projections, if the U.S. increases its share of the international travel market.

The tourism initiative is part of an executive order Obama signed. Its goal is to boost nonimmigrant visa processing capacity in China and Brazil by 40 percent this year; expand a Visa Waiver Program that allows participating nationals to travel to the U.S. for stays of 90 days or less without a visa; appoint a new group of chief executives to the U.S. Travel and Tourism Advisory Board; and direct an interagency task force to develop recommendations for a National Travel and Tourism Strategy, including promoting national parks and other sites.

The efforts to boost tourism were praised by travel and tourism groups, but one lawmaker said the decision to relax tourist visas could undermine national security. Sen. Charles Grassley, R-Iowa, said the administration was “pushing the envelope and using their authority beyond congressional intent,” noting that only two of the 19 hijackers in the 9/11 terrorist attacks were interviewed by consular offices. He said Congress moved to require visa applicants to be interviewed as a result.

The White House says the travel and tourism industry represented 2.7 percent of gross domestic product and 7.5 million jobs in 2010. But the U.S. share of spending by international travelers fell from 17 percent to 11 percent between 2000 and 2010, due to increased competition and changes in global development, as well as security measures imposed after Sept. 11, 2001, according to the White House.

The approach was welcomed by Brazilian tourists Lilian Lara and Lindbergh Souza, who shopped along the resort’s streets hours before the president’s speech. Souza said the visa process was expensive, at $500, and time-consuming for Brazilians who don’t live close to consuls in Rio de Janiero and Sao Paulo. “The whole process took me six months,” Souza said.

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Associated Press writer Mike Schneider contributed to this report.

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President Barack Obama

Stock prices are being increasingly influenced by the trading of exchange-traded funds, with real estate investment trusts as well as energy and consumer companies most affected, according to a Goldman Sachs Group Inc. study.

REITs and energy companies accounted for eight of the top 10 firms in the Standard & Poor’s 500 Index whose trading volume was most driven by trading in ETFs, Robert Boroujerdi, a Goldman Sachs analyst, and three colleagues wrote in a paper released Friday.

Consumer retailers accounted for the five most affected companies in the Russell 2000 Index, which tracks small-capitalization stocks.

ETFs bundle together investments in a particular market index, such as the S&P 500. Unlike mutual funds, they can be traded during daily sessions just like stocks.

They have come under increased scrutiny over whether their trading has increased market volatility and correlation between individual stocks business card. The growing impact of ETF trading on the price movements of individual stocks has discouraged some companies from publicly listing ETFs.

Correlation between the share prices of companies within the same industry groups has increased as ETF assets and trading volume have soared, the study said. Higher correlations indicate that stock prices are rising or falling in tandem.

The Goldman Sachs analysts also estimated the impact of ETFs on the trading volume of individual stocks. Smaller companies were more affected. Among companies belonging to the Russell 2000 small cap index, three had more than 60 percent of their volume driven by ETF trading., led by Houston-based retailer Stage Stores Inc. at 66 percent.

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