What you don’t know about your checking account can hurt you

April 27, 2011

Consumer relationships with big banks may be worse than they seemed just a couple of weeks ago.

Pew Health Group’s Safe Checking in the Electronic Age Project just completed a study that details how consumers have little chance to understand the terms of their relationships with their banks when it comes to checking accounts — and those terms can be pretty heavily tilted in the favor of the banks.

The group studied checking account terms at the nation’s 10 largest banks and found their checking account disclosures had a median length of 111 pages and a lot of consumer-unfriendly conditions.

“Failure to provide clear and comprehensive disclosure can expose account holders to hidden and potentially dangerous risks,” the group said.

Pew said more than 250 types of checking accounts offered online by the 10 largest banks in the United States were examined.

Among the findings of Pew’s study:

  • Consumers are not given full disclosure about how much overdrafts will cost or what options there and banks are not required to tell them.
  • Banks are allowed to change the order in which transactions are processed to give them the most overdraft revenue.
  • Eight in 10 checking accounts lock consumers into binding mandatory arbitration that actually require their customer to absorb the bank’s costs regardless of who wins the dispute.

Pew also reviewed how banks have stepped up their push for profits through overdraft fees, increasing the charges to $38.5 billion in 2011. That’s up $18.6 billion since 2000. And, said Pew, the overdrafts are not proportional to the amount of the overdraft.

The median penalty for an overdraft is $35, Pew said, up from $27 in 2007.

Pew said that if an overdraft was regarded as a short-term loan payable in seven days, the annual percentage rate would be more than 5,000 percent — an interest charge that would make a loan shark’s terms seem fair.

Compounding what U.S. PIRG found in a study released a couple of weeks ago that showed banks weren’t complying with laws that require consumers be given ready access to fees and other account terms, Pew said what information is given out isn’t easy to understand.

“It is exceedingly difficult for the average consumer to find the basic information needed to either select a checking account or to responsibly manage the one they currently have,” Shelley A. Hearne, managing director of the Pew Health Group, said in a statement. “We are calling on policy makers to ensure that overdraft fees are reasonable and proportional. They must also address both the length and clarity of checking account disclosures…”

Pew said the study shows that consumers need the kind of protections that were afforded to credit card holders by Congress.

“Congress acted nearly two years ago and passed the Credit CARD Act of 2009, which protected credit card holders from practices deemed ‘unfair’ or ‘deceptive’,” Eleni Constantine, director of the Financial Security Portfolio at the Pew Health Group, said. “Now is the time for policy makers to further protect American families by ensuring that our checking accounts are safer, easier to use and more transparent.”

Among the changes the organization would like to see:

  • Banks should be required to give customers simple and understandable checking account terms.
  • Banks should be made to provide a list of charges for various overdraft options.
  • Charges for overdrafts should be relative to the banks’ costs and risks.
  • Withdrawals and deposits should be done objectively.
  • An examination of binding arbitration clauses to see if they are inhibiting consumers from getting what they’re due when there’s a dispute.



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What about stop payment fees? I inquired at my bank which charges $27 and I do it online so what exactly are they doing for the money?

Posted by damicod | Report as abusive

Like anything else, the little guy gets eaten.

Posted by Cybs | Report as abusive

If ten thousand customers emailed a copy of this report to their bank’s information request line, would it make a difference? At the least it might clog up their email lines a bit and let them know that someone is paying attention and outraged.

Better yet, post this to your Facebook page, maybe if ten million people did it, some changes might happen.

What do we have to lose?

Posted by cehackney | Report as abusive

Who trusts banks, for heavens sake? Do you think we’re stupid? The Fed and US government have made sure the banks will make record profits even though our current administration said they were implementing “consumer protections.” Wrong, everything they do is to support the banks. Only idiots believe any of these people any longer. Bernanke may not have said much yesterday but it is apparent this leach is only interested in preserving his interests in the banks. Consumers are, as usual, on their own. He ensured that people will still be getting dismal returns…rates at 2 percent or less on their savings…for years. Until there is a revolution of people in this country, the economy will continue along the present path, enriching the greedy rich and screwing the middle class. Put that on Facebook….

Posted by lezah2 | Report as abusive

With my bank our monthly fees are “ZERO!!!”

If consumers don’t want to have “over-draft” fees, don’t over-extend yourselves!

Don’t try to “Keep up with the Joness\'”

Manage your money so you don’t get in that spot to give your bank another excuse to tack ANOTHER FEE on your account!

In most cases the “Account-holder” knew darn-well he or she was writing a check where they did’nt have enough funds to cover it to begin with!!! In that case a “FEE” charged by the bank is entirely justified!

I went thru that as a young “Family-man” and later on had LEARNED MY LESSON about wasting money on “interest charges & over-draft fees!’.

Posted by Middleclassman | Report as abusive

Maybe we can bury our cash in a jar in the back yard.

Nobody likes fees. And some fees are unfair (ODP, Stop payments, check ordering), but do we have an alternative to banks? How do you determine the ‘cost’ of an ODP transaction? Maintaining a bank branch office, online banking website, ATM network or call center could all be considered ‘costs’ as they are there to handle customer transactions.

In the past, bank checking accounts were supported by OD fees. Since I don’t bounce checks, I got a free ride. But since Congress prevented OD fee abuse as part of the bailout (yes, taxpayer, you did get something out of the bailout, not to mention the banks have paid most of the bailout money back), checking accounts need to charge service fees, so now nobody gets a free ride.

As for sequence of payments, banks generally pay your large balances first, since those are probably more important (mortgage, for instance) than small balances (check to the paperboy). It also works out in the banks’ favor, since more checks bounce that way.

Everyone hates banks because everyone needs them. Do we complain about hidden fees in ‘no-load’ mutual funds? No, because we think they are free. Do we complain about credit cards with no annual fees (‘free’ money if you pay your balance, because those who don’t give those who do a free ride)? Do you complain about direct deposit (for free) so you don’t have a paper check and get access to your money sooner? That service, I’m afraid, is funded by the evil overdraft or service fees.

So you may hate them, but can you live without your bank? Try going without a debit card, direct deposit, online banking, checks and ATMs for a month (if your employer ever allows paper payroll checks anymore, and you still need a bank to cash them). There are lots of banks (or credit unions, or brokerages with checking accounts) out there, and they all charge fees. Financial cabal? Or maybe it is expensive to run a financial services company, and the user (somehow, some way) foots the bill.

As for the anemic interest rates, would raising interest rates (to give savings rates a boost) help the struggling economy? No, the Fed really doesn’t care about your savings account compared to the health of the economy as a whole.

PS…I hate ‘network’ fees on my cable bill, paying for a network that was built 30+ years ago. But that doesn’t make me want to drop the service. And don’t get me started on a ‘service fee’ every Box Office charges to buy tickets…all I want is the ticket, not the ‘service’ of being able to buy it.

Posted by Mike_s1 | Report as abusive

If you rob a bank of $10k, you go to jail. If you borrow $500k and don’t pay it back (ie bankruptcy) nothing happens. Don’t blame banks, blame bankruptcy laws. It takes a long time to recover $500k in late payment/overdraft fees.

Posted by minipaws | Report as abusive

I bank at a credit union. No fees for checks, no charge for checks and understandable small print. We switched from a “big bank” seven years ago when we were being A”feed” to death with a business account at the “big bank.” Best move we ever made. We also have another account at a small community bank.

Posted by neahkahnie | Report as abusive

It’s not just banks, credit unions use the same dubious practices. I have an account with Schools Credit Union out of Northern California and they docked my account $5 without my consent or knowledge because I’ve been receiving paper statements for as long as the account has been open. These used to be free. What’s worse, that fee overdrew my account! Banks like Wells Fargo are run by bastards but so are credit unions.

Posted by cam8008 | Report as abusive