Unraveling Effects of Industry Deregulation : Consumer Groups Tackle Financial Issues in Telephone Communications and Banking
In Ronald Reagan’s world of deregulation, the country’s consumer activists find themselves impaled on the horns of a dilemma--intrigued in many respects, in spite of themselves, by the theory of it all. Distressed, in many areas, by the reality of it.
Here at the 19th Consumer Assembly last week--an annual survey of pocketbook issues sponsored by the Consumer Federation of America, a grass-roots affiliation of 220 largely volunteer, nonprofit groups with a combined membership of 30 million--primary emphasis was on two particularly hot potatoes tumbling out of the deregulation fire: the jumbled telephone situation and the equally controversial impact of what unleashing the banking community has done to consumers.
Sharp Criticism
On broader policy issues, however, such as Reagan’s use of the Office of Management and Budget to sharply curtail the activities of such federal agencies as the Environmental Protection Agency, the National Highway Traffic Safety Administration and the Occupational Safety and Health Administration, criticism was sharp, bordering on vitriolic.
Joan Claybrook, president of the activist Public Citizen movement, called the Administration’s insistence that proposed agency regulations pass a “cost effective” litmus test clear evidence that “this Administration is openly hostile to what it calls ‘social regulation,’ that is, regulation that benefits individual citizens at the real or imagined expense of the business community.”
Matters of critical importance, such as the need for agency action on food additives, water purity, workplace toxins, hazardous waste disposal and automobile safety, Claybrook argued, have been left “in the hands of low-level political appointees in OMB who have neither the training nor the experience to properly review the many often technical issues raised by proposed agency actions.”
Lingering Ambivalence
On the issue of the breakup of Ma Bell two years ago, however, the ambivalence was clearly apparent. “Was it a good thing? Was it a bad thing?” were questions that came both from representatives of the telephone industry itself and from the consumerists. As R. L. Tobias, chairman and chief executive officer of AT&T; Communications, reminded the assembly attendees, “divestiture wasn’t our idea. But the fact is, there is no turning back. Whether you loved her or hated her, Ma Bell is gone . . . forever.”
And an open critic of the post-divestiture telephone industry, Rep. John Bryant (D-Tex.) admitted that in principle the court decision breaking up AT&T;’s 100-year monopoly was beneficial in giving consumers a badly needed choice, “although the competition that we thought would benefit consumers is shrinking away.”
With its massive resources, Bryant said, AT&T; has already started with a dominant share of the long-distance market and, of its 100-odd would-be competitors, only a handful, headed by MCI, emerge as possible survivors.
“We’re headed right back toward monopoly,” Bryant warned, “and even the individual Bell companies that were spun off in the divestiture” are petitioning the courts for permission to go into the telephone equipment and long-distance businesses so that we could end up with a whole batch of new, smaller, AT&Ts.;”
With the cost of residential telephone service having risen an average of 35% to 50% nationally since divestiture, Bryant added, “AT&T; should not be further deregulated until a ‘level playing field’ has been reached. Until we have equal access across the board.” (Equal access refers to the access fee every telephone user pays for linkage to long-distance lines whether he uses long-distance or not.)
Confusing Situations
Confusion over the telephone situation--whether to lease or own the equipment; which long-distance carrier to select; what happens if you don’t make a selection; how to compute long-distance changes, and who is responsible for maintenance of what equipment and why--resulted in the announcement here last week of a major research project to be conducted jointly by the Consumer Federation of America, AT&T; and the 21-million-member American Assn. of Retired Persons. To be funded by AT&T;, the nationwide, in-depth study will zero in on the confusion created by the Ma Bell breakup and how telecommunications technologies can be applied to meet current and emerging consumer needs in education and health care.
“With older citizens,” according to Cyril Brickfield, executive director of the American Assn. of Retired Persons, “we know that a full 66% find the telephone situation extremely confusing and that about 20% have curtailed their use of the phone under the belief--rightly or wrongly--that the costs have gone up. They have, locally, of course, but they haven’t for long-distance, but they’re not drawing the distinction.”
“The truth of the matter is,” said Stephen Brobeck, executive director of the Consumer Federation, in making the research announcement, “no detailed study has ever been made of what consumers really use the phone for, and how they relatively value the various types of service.”
Another pocketbook-hitting issue shared the dominance of this 19th Consumer Assembly--deregulation of the financial services community and the resultant emergence of new banking fees, acceleration of old fees and the industry’s wooing of affluent depositors at the expense of low- and middle-income customers.
Again, as in the case of the telephone industry, deregulation of banking has its pluses, Rep. Mary Rose Oakar (D-Ohio), a member of the House Banking Committee, told the assembly of consumerists. “It has created a wide range of high-interest, low-fee bank accounts for people with money, but it is rapidly removing low-income people from the system. The Federal Reserve reported in 1985 that nearly 40% of low-income families have no checking account and that the proportion of families with neither savings nor checking accounts has increased since 1977.”
Fees, Restrictions
A new rash of higher fees, restrictions and minimum balances required by banking institutions (checking charges ranging from $5 to $15 a month, minimum savings account balances normally pegged at $500 and, increasingly, more banks requiring possession of a credit card as a condition for a checking account) are major disincentives to thrift, when the country can least afford it, Oakar said. “The United States has the lowest personal savings rate among our major industrial allies. While the average savings rate in the U.S. is 6.4%, England saves 11.7%, Germany 13%, Canada 13.2% and Japan saves 21%.”
Overall, she added, “the system is healthy and strong, institutions operate in a safe and sound manner, and consumer’s deposits are safe. However, bank failures, agricultural credit problems, international bank loans, skyrocketing bank fees, crises in confidence in Ohio and Maryland, non-bank banks and interstate banking must be dealt with by Congress to reassure consumers that the financial system is safe and the activities of financial institutions are sound.”
In the backwash of the closing of 72 privately insured institutions in Ohio, with deposits of more than $4 billion, and 102 similar institutions in Maryland with more than $7 billion in deposits, Oakar has introduced legislation in the House of Representatives that would require all banks and savings and loan associations to obtain Federal Deposit Insurance. There are still 638 institutions with $23 million in consumers’ deposits without this protection.
Again, at the consumer assembly, the ambivalence over deregulation once more resurfaced with Oakar: Deregulation of the banking industry “ could lead to more competitors and better consumer service, but I must still be convinced that multinational or conglomerate corporations--such as Sears, J. C. Penney, Merrill Lynch or Prudential--which now offer a combination of financial services including real estate, securities insurance and limited banking will have the best interests of the consumers at heart. . . . I believe local institutions in touch with their communities can best serve the consumers’ needs.”
