Hidden Risks: The Case for Safe and Transparent Checking Accounts

by Mercator Advisory Group 0

Overdraft fees were the source of heated discussion during the framing of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The FDIC has already been active in encouraging banks to provide better disclosures to consumers so they can easily compare banking products. They are currently working with 13 banks in new product pilots that are focused on improving services to the estimated 40 million unbanked and underbanked consumers in the U.S. The Pew Health Group Safe Checking in the Electronic Age Project has just published a report on the overdraft policies on the 10 largest banks in the U.S. Pews findings are as follows:

• Banks do not provide important policies and fee information in a concise and easy-to-understand format that allows customers to compare account terms and conditions among banks. The median length of checking account disclosures is 111 pages.
• Banks reserve the right to re-order transactions in a manner that will maximize overdraft fees.
• Accountholders are not provided full information about the respective costs of overdraft options when considering opting-in to overdraft coverage.
• Bank overdraft penalty fees are disproportionate to the size of the median overdraft amount.
• More than 80 percent of accounts examined contain either binding mandatory arbitration agreements or fee-sharing provisions that require the accountholder to pay the bank’s “loss, costs, and expenses” in a legal dispute regardless of the outcome to the case.

Hidden Risks offers a number of policy recommendations to make checking accounts safer and more transparent for American consumers.

Safe products and full disclosure will the first set of initiatives taken up by the Consumer Financial Protection Bureau (CFPB) when it goes into operation this July. The summer heat may very well last well into the winter of 2012.

For more information read the press release: http://www.pewtrusts.org/our_work_report_detail.aspx?id=85899359118
For a copy of the Pew Report Hidden Risks: The Case for Safe and Transparent Checking Accounts http://www.pewtrusts.org/uploadedFiles/wwwpewtrustsorg/Reports/Safe_Banking_Opportunities_Project/Pew_Report_HiddenRisks.pdf

Mercator reports on the topic include: “Retail Banking’s Canary in the Mine: Marketing to the Underbanked Customer”