Buried towards the end of President Obama's 85-page financial reform plan lies a relatively simple solution to banking complexities: He proposes that banks should provide online calculators that would make it easy for people to figure out how much money they owe and how long it will take them to pay back debts.
These online calculators would let people enter different time periods or payment amounts above the minimum. "The [Consumer Financial Protection Agency] should mandate a calculator disclosure in circumstances where the CFPA determines the benefits to consumers outweigh the costs. It should also mandate or encourage calculator disclosures for mortgages to assist with comparison shopping. For example, a calculator that shows the cost of a mortgage based on the consumer's expectations for how long she will stay in the home may reveal a more significant difference between two products that appears on standard paper disclosures," the report says.
The report acknowledges that online calculators are already readily available on the Internet. But it's not always easy for consumers to find the calculator that best suits their needs, and that's where the banks' calculators could come in. For example, for a consumer looking to make a mortgage calculation, one-size-fits all calculators will generally ask just basic questions, from the mortgage term to the interest rate. They generally don't include the fees charged by specific institutions, state taxes, or adjustments for length of time a consumer intends to spend in a home.
Not everyone likes the calculator idea. Wayne Abernathy, executive vice president for financial institutions policy at the American Bankers Association, says it's an example of how the overall financial reform proposal is trying to apply a concept that may just work for some people to everybody. "I'm afraid this excessive reliance on technology turns people into commodities. It treats everybody like they look like one another and can spit out products that meet their needs," he says. But good banking requires individualized, person-to-person service, he says. Plus, he adds, certain demographics, such as retirees, prefer to visit bank branches as opposed to relying on their Internet connections at home.
Most large banks already dedicate portions of their websites to consumer education, and offer interactive tools and calculators for retirement savings and budgeting. Still, if the CFPA requires banks to provide specific types of calculators, it could end up costing them money.
"The big guys can take these costs and roll them into the cost of the product, but take a bank with one or two branches, and I'm guessing the cost will be higher, so it tends to further reinforce the bias in regulation that favors large banks over small ones," Abernathy says.
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