"People out there are getting whacked," Dodd said. "They should have the right to say, 'Deny me the transaction.'

The Federal Reserve periodically threatens to add regulations that would make overdraft fees "opt-in," but mysteriously never seems to actually do it.

Is it time for Congress to step in?

Democrats Target Bank Overdraft Charges [WaPo]
(Photo:flygraphix)

The trouble with Paulson came in December, when Merrill Lynch's projected fourth quarter losses began to skyrocket. Lewis met with Secretary Paulson, Federal Reserve Chairman Ben Bernanke, Bank of America's CFO, and other officials to discuss whether or not Bank of America could invoke an escape clause in their contract that protected them from a material adverse event. (This is called the "MAC" clause.)

From Mr. Cuomo's letter:

Bank of America's attempt to exit the merger came to a halt on December 21, 2008. That day, Lewis informed Secretary Paulson that Bank of America still wanted to exit the merger agreement. According to Lewis, Secretary Paulson then advised Lewis that, if Bank of America invoked the MAC, its management and Board would be replaced:

[W]e wanted to follow up and he said, 'I'm going to be very blunt, we're very supportive on Bank of America and we want to be of help, but' —as I recall him saying "the government," but that mayor may not be the case -"does not feel it's in your best interest for you to call a MAC, and that we feel so strongly," —I can't recall if he said "we would remove the board and management if you called it" or if he said "we would do it if you intended to." I don't remember which one it was, before or after, and I said, "Hank, let's deescalate this for a while. Let me talk to our board." And the board's reaction was of"That threat, okay, do it. That would be systemic risk."

Lewis advised the board of the threats made by the Treasury and they agreed to go ahead with the merger in order to avoid any systemic threat to the financial system. The letter goes on to say that while Paulson corroborates Lewis' story, he claims to have made the threat at the request of Fed Chairman Ben Bernanke.

Further, Lewis also claims that he didn't disclose this information to shareholders at the request of Paulson and Bernanke... a charge that Bernanke apparently denies.

You can read Cuomo's letter and examine the documents he's provided to the Senate:

Cuomo's Letter (PDF)

Exhibit A: IN RE: EXECUTIVE COMPENSATION INVESTIGATION BANK OF AMERICA -MERRILL LYNCH (PDF)

Exhibit B: MINUTES OF SPECIAL MEETING OF BOARD OF DIRECTORS OF BANK OF AMERICA CORPORATION December22,200 (PDF)

Exhibit C: MINUTES OF SPECIAL Meeting OF Board OF Of DIRECTORS OF BANK OF AMERICA CORPORATION December 30. 2008 (PDF)

Exhibit D: Email To Ken Lewis (PDF)

Last time we checked in, the Fed had passed some good regulations that stopped some of the worst abuses by credit card companies. Unfortunately, those regulations won't go into effect until July 2010 and they don't go as far as what Congress and the President want. The Credit Cardholders' Bill of Rights, sponsored by Representative Carolyn Maloney (D-NY) cleared the House by a wide, bipartisan margin, but didn't get out of the Senate before it adjourned. On the other side, Senator Chris Dodd's (D-Conn.) Credit CARD Act contains much of the same language as the House bill but also adds important protections for consumers under 21, who are often targeted by credit card companies marketing on campuses.

With the renewed vigor of a new Congress and administration, both houses of Congress are working on getting legislation passed and sent to President Obama. Here's what the legislation will do:

• Banks can only increase a credit card's APR if the rate is a promo rate that expired, if the rate is based on an index (for instance, prime plus 3%) and the index increases, or if the customer is late or doesn't make a payment on that account. This effectively bans universal default, where a bank will increase a card's APR because you were late on paying a different card.
• Bans double cycle billing
• Banks can't charge fees or consider you in default if your entire balance consists solely of interest that accumulated on the charges.
• Banks cannot notify credit agencies that you have a new credit account until you use or activate that account
• Banks cannot charge fees for paying by phone or online.

The House bill will take effect one year after the bill becomes law, or no later than July 2010, when the Fed regulations take effect. One exception to this is an amendment that was added will require banks to notify customers 45 days before raising their interest rates; this measure will take effect 90 days after the bill is signed.

President Obama has indicated that he'd like to include more protections, such as requiring banks to apply credit card payments to balances with the highest APR, rather than split proportionally. Obama is also proposing requiring companies to get consumers' permission before adding overdraft protection, rather than just giving consumers the chance to opt out, like under the House bill. Additional protections include requiring that payments be due at the same time every month, and that billing statements disclose how long it will take to pay off the balance when making only the minimum payment.

Lots of good stuff out there. Politically tricky as it may be, we'd love to see merchant agreement violations like minimum purchase and and fees for using credit cards addressed somehow, but that will have to wait till another day.

(Photo: jakesdad)