Sunday, October 27, 2013

Is M&T Bank overcharging black customers in overdraft fees?

Authored by Dr. Lachin Hatemi
 Published by

The U.S. Census Bureau lists Buffalo, New York, as the third poorest city in the United States; however, news about poverty is nothing new in the Western New York region. The cycle of poverty has continued in some parts of Buffalo for generations, and the city’s poverty rate remained stuck at about 31 percent based on 2011 data. 

In 2008, the United Nations released a report named “State of the World’s Cities” in which the Buffalo-Niagara Falls area was cited as having one of the worst rates of racially-based economic inequality in the world.  In addition, the Census Bureau also released information placing the Buffalo-Niagara metro area, as the 8th most segregated region in the United States.

Coincidentally, Buffalo is also home to the one of the largest and most profitable regional bank in the Unites States – the Manufacturers and Traders Bank (M&T Bank). M&T was established more than a century ago when Buffalo was a bustling city.

Despite Buffalo’s declining fortunes, M&T Bank somehow prospered during the same period. Since 1980, M&T had experienced an annual compound growth rate of 19.8%. Only a handful of other companies in the entire nation had done so well for so long. It is a well-known fact that the one of the richest men in the world, Warren Buffet, long admired M&T’s current chief executive officer, Robert Wilmers. Buffet occasionally talks to Wilmers, and Buffet’s investment company Berkshire owns 4.1% of the M&T Bank’s outstanding stocks. Warren Buffet loves M&T Bank for a good reason – it had dominated the No. 1 position among local deposit-takes in the Western New York area. Based on data from June 30 2013, M&T Bank has 47.2% of all the bank deposits in the Buffalo/Niagara region.  

But a big question remains unanswered about the surprisingly high profits of M&T bank:

How can a regional bank serving the poorest and most segregated cities of Western New York and the East Coast yield such record profits?

The magic answer is the “overdraft fees” and victims of this crime are the low-income customers. A $37-$38 overdraft fee can make a difference between buying groceries and facing hunger for a low-income single mother with kids who lives in the dilapidated neighborhoods of Buffalo. Burden of overdraft fees are disproportionately on the poor urbanites. Those living paycheck to paycheck are more likely to overdraw their deposit accounts.

Moebs Services reported that U.S. banks made a whopping $31.5 billion in 2012 despite stricter federal regulations enacted since 2010. One of the most recent federal regulations governing the overdrafts fee was Dodd-Frank Act of 2010, which tried to prevent predatory overdraft affecting the poorest segments of the population.

Dodd-Frank Act simply mandated banks to do something that sounds like a no-brainer – obtaining a customers’ consent before signing them up for “overdraft services” that many customers never asked for in the first place. The federal law also describes how such consent can be obtained to ensure transparency.
Official Commentary published by the Federal Reserve further describes the consent methods which are defined as reasonable: providing the customer with a written form which can be signed in person at a bank branch is one of them. Consenting via internet or phone was also suggested as acceptable alternatives, but such methods were less likely to be used by the poorest customers. Given that most low-income customers are not comfortable with Internet banking, consenting in writing remains the most viable method.

To my surprise, M&T Bank obtains consent verbally without any reproducible proof of the transaction. There is no record of the verbal consent and how the customer was asked to consent by the bank employee. There is no paperwork, no accountability, and no proof of the consenting process for overdraft fees in person. Surprisingly, M&T does not provide a standard written form, which you can fill out to give consent for overdraft protection. You simply cannot consent in writing at M&T Bank even if you request it.
This shocking revelation prompted me to contact some high level executives at M&T Bank since I coincidentally live in Buffalo where M&T has its headquarters.

On October 7, 2013, I personally met with Joseph Lombardo, Vice President of Consumer deposits, and Rich McCarthy, Senior Vice President of M&T Bank’s retail branch network. My primary goal was to discuss the facts and observations that I shared with you in the preceding paragraphs. My conversations with the two high-level bank executives confirmed my worst fears. M&T does not provide its customers a standard form to consent for overdraft services in writing which might be a gross violation of the Dodd-Frank Act. I think this matter deserves close attention from the respective federal banking regulators.

Nobody is above the federal law. M&T Bank’s lawyers should read the Dodd-Frank Act one more time with utmost attention and comply with it. They should also keep their hands off the hard earned money of minimum wage earners.

Lachin Hatemi is a physician in Buffalo, New York. His interests include human rights, patient’s rights and interfaith dialogue. You can reach Lachin at 

Lachin Hatemi
Lachin Hatemi

1 comment:

  1. I applaud Dr Hatemi for his efforts to publicize this issue. I think I'll choose another institution to do business with.