NetSpend and MetaBank have ignored critics of their products. Now they are paying the price.

There is a lesson in corporate strategy to draw from this situation. It doesn’t make sense to put so much effort into a financial product, given the degree of regulation associated with the banking sector, and then ignore the reaction of consumer groups and flout your regulator.

The risk is evident. MetaBank has seen its shares lose $39 million in value in the last 24 hours. NetSpend was ready to do an IPO that was expected to bring $200 million to the firm. We don’t know how things will go tonight, but it seems to safe to assume that they are going to come back with tens of millions of dollars less in equity.

There are other companies in the prepaid space that do things better. Green Dot made an aggressive outreach to (more…)

The run on Kabul Bank leaves policy makers with a set of bad choices.

Kabul Bank was created as part of US strategy to create a civil society in Afghanistan. Critics might say that is another example of cultural imperialism, where a conqueror creates institutions that mirror their own. Fine. At the same time, a banking system creates the framework for exactly the kinds of changes that will lead Afghanistan toward progress.

Deposit-holding customers have withdrawn $200 million from Kabul Bank this week.

It would be less problematic if the shortcomings at Kabul Bank weren’t so clearly due to (more…)

The time for a decision on ShoreBank may be coming soon.

A few rumors are circulating that the FDIC is ready to make a decision about ShoreBank, the famous Chicago community development lender that helped to define the field of community capitalism.

ShoreBank created a model of making loans in low-and-moderate income neighborhoods in the South Side of Chicago. ShoreBank ignored many of (more…)

The Federal Housing Administration has decided to rethink how it protects itself with a new guidance last month. The new rules have implications not just for borrowers, but also for private mortgage insurance companies.

The new rules, known as the Loan Level Pricing Adjustments (LLPA – pdf here), say that most FHA borrowers will now have to pay an upfront premium of 150 basis points on the amount of their FHA loan. Subsequently, they will be expected to pay another 50 basis points each year. That second charge is paid with the monthly payment.

One analyst at a private mortgage insurance company called me to tell me how much of a difference this will make for his company. He paints a tough picture for the market in the last year: the private firms were being squeezed by the low rates at FHA and the high origination fees built in to (more…)

Banks only have two more weeks to get their existing customers to opt-in for overdraft protection.

I couldn’t believe it at first, but its true: banks are spending their time and money trying to understand the psychological makeup of the typical overdraft user.  One consultant says that it is all about helping the customer to make a “Good NSF Decision.” I will let you guess how they define “good.” The hunt is on. Now.

During the NSF-Hunt, a smart banker seeks first to understand. This is what the consultants are for, of course.  The rules don’t prohibit overdrafts. They just make it a requirement that a consumer gives his or her consent for an overdraft service first.

Still, there’s not a lot of time. If in two weeks, the banks have not found a way to get a consumer to opt-in, then that fee stream will be gone.

It is all about the right “relationship.”You’ve heard that term. It is often the come on for a heavy package of wealth management services, or for private banking.

“The relationship banker is the person who is going to fulfill his or her professional mission by putting himself or herself at the disposal of a decision maker. You’re not building your career on their back, they’re building their industrial purpose on your back.” (Fortune Magazine)

That’s nice. But there are so many people out there, and so little time before August 15th. Moreover, the consumer that knowingly opts-in for overdraft is not typical.

They’re looking for a different type of person. They are seeking to find the co-dependent customer, ideally for a long-term relationship.

To help those bankers with on their NSF hunting, they are seeking help.

The Wall Street Journal has a feature on one of those consultants – David Peterson. Peterson wants the bankers to understand things.

What does a person feel when they get an overdraft? According to Peterson, it is a (more…)