June 3, 1998
Consumers Union Washington Office
WASHINGTON – The Federal Reserve needs to reassert its authority as the nation’s top cop on bank mergers and seize an opportunity to apply the law to benefit consumers.
“Failure to apply and enforce antitrust laws designed to promote competition would be devastating for consumers pocketbooks,” said Consumers Union attorney Frank Torres in testimony before the House Judiciary Committee Wednesday. “Consumers are already feeling ‘bounced’ by the merger wave.”
The current approach used by the Fed to analyze bank mergers is part of the problem. Department of Justice guidelines for implementing the law which are “overly generous” according to Torres. These guidelines are more lenient about concentration in the banking industry than they are for other industries, he added. Moreover, these guidelines permit bank mergers that concentrate the market because regulators may trump consolidation concerns by singling out so-called “operating efficiencies”. From the consumer perspective studies on these presumed efficiencies are mixed at best, Torres said. On the other hand, if cost savings are generated there is no guarantee consumers will benefit.
Meanwhile, the Fed’s review of evidence about behavior that harms consumers like higher fees, higher minimum balance requirements, bad service complaints and coercive practices get short shrift, even though the Fed is required to look at whether a merger is detrimental to the public interest.
Consumers Union, the publisher of Consumer Reports magazine, called on the Fed to take stronger action to ensure the public interest is served by mergers in the banking field and to make certain that the convenience and needs of consumers are met. A desirable interpretation of the public interest would include requirements that banks provide affordable banking services, protections against abuse or deception, guarantees that cost savings are passed onto consumers and a rededication to commitments to invest in the communities they serve.