Here’s the Bloomberg story on one of today’s regulatory theater announcements:
Bank of America Corp.’s Merrill Lynch wealth-management unit was fined $2.8 million by the Financial Industry Regulatory Authority for overbilling customers by $32.2 million over an eight-year period.
Merrill Lynch charged the fees to about 95,000 accounts between April 2003 and December 2011, FINRA said in a statement today. New York-based Merrill Lynch, which was acquired by Bank of America in 2009, lacked an adequate supervisory system to ensure that customers were billed in accordance with their contracts and disclosure documents, the regulator said.
Now of course, the bank says this was all a mistake, but it’s pretty certain the way Finra found about about it was via customer complaints, since the average amount pilfered per customer was under $400. This means that even if it was an initially error, Merrill and later BofA refused to correct it when alerted (customers who noticed would presumably try to get the charge reversed, and only then try other routes).
One also assumes the money was disgorged.
But let’s make some simple assumptions. Since this took place over eight years, let’s assume the average amount outstanding of money the bank had that it wasn’t entitled to was half that, or $16 million. This was free money, absolutely no cost of funds. If you assume even a low rate of return, roughly 2% or higher, and factor in that the fine was paid in arrears, and a full year after the practice stopped, the fine wasn’t even a punishment. It’s almost certain to be less than the money Merrill/BofA made from this abuse (alternatively, you could use cost of funds, which has plunged in the wake of the crisis, but was a meaningful positive number prior to when the Fed started implementing ZIRP).
So much for regulatory competence.