More of the nation’s biggest banks are clearly disclosing key terms and fees on checking accounts. Still, rules are needed to force the laggards to do better, and to protect consumers from “gotcha” overdraft fees and from signing away their rights for settling disputes, a study released last week by the Pew Charitable Trusts found.
“The results are a mixed bag for consumers this year,” said Susan Weinstock, director of Pew’s consumer banking project. “The good news is we’ve seen improvements in some areas. The bad news is we’ve also seen some worsening,” she told reporters in a conference call last week.
Pew’s third annual checking account review ranked 45 of the 50 largest banks in three key areas: account disclosures, overdraft policies and dispute resolution policies. Ally Bank, which operates primarily as an online bank, was the only institution to receive a perfect score.
On the plus side, 62 percent of the 45 banks reviewed this year have adopted a simplified disclosure box that meets Pew’s criteria.
Overall, 78 percent of the 32 banks that have been included in Pew’s study over all three years have adopted the favored disclosure box, up from 25 percent in the first year of the review in 2013.
“That is a big victory for consumers,” Weinstock said.
But excessive overdraft charges remain a major problem, she said, with too many banks reordering transactions from highest amount to lowest, a practice that tends to drain an account more quickly and trigger the most overdraft fees.
Pew also found that most banks continue to charge “continuous” overdraft fees, which are extra charges that kick in when an account remains in the red for a certain period. The fees come on top of the typical per-item overdraft fee of $35.
On the upside, more banks are waiving fees for small overdrafts of less than $5, while nearly all cap the number of overdraft fees that can be assessed in one day, Pew said.
“Even with improvements … customers at banks typical of those studied can still rack up $175 a day in overdraft fees,” Weinstock said.
The worst news was in the area of dispute resolution, she said, with more banks adding mandatory binding arbitration clauses to their checking account agreements.
Pew said changes were needed to protect consumers from unfair bank practices.
The Washington, D.C.-based group called on the federal Consumer Financial Protection Bureau to make simplified standard disclosure boxes mandatory; ensure that options for overdraft coverage, including opt-out procedures, are clearly laid out; prohibit banks from reordering transactions from high to low; restrict overdraft fees so they are “reasonable”; and prohibit mandatory binding arbitration clauses.
“Checking accounts are essential financial products used by nine in 10 American households,” the study said.
“Policy makers cannot wait for financial institutions to voluntarily adopt comprehensive practices ensuring that checking accounts are safe and transparent.”
For Pew’s full report, “Checks and Balances,” visit www.PewTrusts.org.