An article published by American Banker alerted us to a questionable refi pitch that Bank of America is currently making in direct mail advertising:

“See if refinancing could save you an estimated $4,344 in annual payment savings,” reads the pitch in boldface on a direct mail advertisement sent to a New Jersey borrower last month.

The ad compared the borrower’s current mortgage payment on a 20-year fixed-rate loan with an interest rate of 4% to B of A’s “new loan program” that offers a 30-year fixed-rate at 3.75%. B of A showed a breakdown in which the borrower would be paying two points on the new loan, adding an estimated $8,977 in fees and closing costs. That would increase the overall interest rate to 4.1%, excluding taxes and insurance.

In short, B of A’s pitch, with its focus exclusively on lowering the borrower’s monthly payment, implied that the deal was in the consumer’s best interest, even though the borrower would end up paying a higher interest rate and would be adding 10 more years to the overall life of the loan.

Such tactics are not in a borrower’s best interest and fly in the face of efforts by the Consumer Financial Protection Bureau to make consumer products more transparent, simpler and easier to understand, consumer advocates added.

Andrew Pizor, a staff attorney at the National Consumer Law Center, examined B of A’s letter and calculated that the new refinance offer would add $37,188 more in interest over the life of the loan compared to the borrower’s current mortgage.

“This ad clearly implies that this refinancing is right for this borrower,” says Pizor. “I think the pitch is kind of deceptive because it boldly mentions ‘save’ and ‘savings,’ repeatedly, and of course it refers only to the higher interest rate and overall loan amount in the footnotes. Marketers know those details will be overlooked.”

The list of frequently asked questions also gives borrowers the impression “that B of A is looking out for the borrower’s best interest,” Pizor says. “If I was representing this borrower, I’d argue that Bank of America has assumed a fiduciary duty to the borrower by making this promise. But I’m sure the bank wouldn’t agree.”

Bottom line: consumer advocates and banking industry officials appear to differ over whether ads such as B of A’s rise to the level of making false or misleading claims.

Bank of America Chief Executive Brian Moynihan is looking to squeeze Merrill Lynch’s “Thundering Herd” for more revenue and profit through cross-selling.

In the banking business when you try to sell customers additional products it’s called “cross selling”.  Banks like BB&T and Wells Fargo have strong cross-selling reputations.  For example, Wells Fargo says it sells an average of 6 products to its retail-banking customers.

Things get messy when this cross selling breaches the boundary between bankers and brokers.  For example, Merrill Lynch brokers’ yearly bonus partially depends on how much money brokerage clients have in checking and savings accounts at parent Bank of America.

Merrill Lynch brokers and managers complain that this compensation structure essentially puts Bank of America’s own interests ahead of clients since Merrill employees have a disincentive to advise customers to withdraw money from bank accounts.  Other Merrill brokers say customer service at BofA isn’t reliable enough for them to feel good about encouraging clients to do business there.

Source: Merrill Staff Sees Red Over BofA Cross Selling (Wall Street Journal)