Time for a CARD Act for Checking Accounts?

Surprised by a fee on your checking account? Don’t be. If you’ve tried to get information about the costs of your checking account, you may have come away from the experience ready to stash your money in your mattress. Two recent studies point out just how difficult it is to get straightforward checking account cost information.

The Pew Charitable Trusts analyzed more than 250 types of checking accounts offered online by the ten largest banks in the United States, which hold nearly 60 percent of all deposit volume. In its report, Hidden Risks: The Case for Safe and Transparent Checking Accounts, they revealed that the median length of checking account disclosures is 111 pages. No, that’s not a misprint: One hundred eleven pages.

Who is going to read that?

Of course, that’s provided you can even get cost information. In another recent study, U.S. PIRG staff conducted inquiries at 392 bank and credit union branches in 21 states and reviewed bank fees online in 12 others. Their report, Big Banks, Bigger Fees 2011: A National Survey of Bank Fees and Fee Disclosure Policies, describes how:

Fewer than half (38%) of branches complied easily with the simple researcher request for fee schedules required by the Truth In Savings Act; only after two or more requests did a total of 55% percent of branches provide fee schedules as requested and as required by the Truth In Savings Act. Nearly one-quarter (23%) of branches surveyed refused to comply at all.

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Here are a few of the responses PIRG researchers received when asking for checking account fee schedules:

• Massachusetts: “Fees are “listed on the wall.”
• California: “This bank had the fees in a binder in the back and taped up in each teller stand, they had to take them out of the binder/off wall to copy to give to me.”
• Georgia: This bank didn’t have one, the bank staff said, “I don’t even have a list. Let me see if I can think of some for you off my head….””
• New York: “No copies, come back tomorrow.”

Even worse? Nearly one in five (22%) provided wrong or incomplete information.

But as difficult as it is to drag checking account cost information out of financial institutions, they are apparently doing a great job of communicating the “benefits” of their costly debit overdraft protection programs to their customers. The Center for Responsible Lending reports that almost half of those who opted in to debit card overdraft protection cited “stopping the bank from bombarding them with opt-in messages by mail, phone, email, in person, and online banking…”

Other findings from the PEW study:

• 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.

As PEW points out, nine out of ten Americans have checking accounts. That’s more than have credit cards or mortgages. Given the trend toward reducing and eliminating free checking, the problem of finding affordable options is only likely to get worse.

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PIRG is calling upon the Consumer Financial Protection Bureau to extend the requirements of the Truth In Savings Act to the Internet, and require that information be provided in a searchable format. It’s also recommending a “Schumer Box”-type disclosure, similar to that used now for credit cards, so it will be easier for consumers to understand costs. Pew has gone one step further, creating a model disclosure for checking accounts. (See page 10 of the report.)

If the Consumer Financial Protection Bureau doesn’t force banks to come clean (and clear) on costs, then perhaps a new CARD Act—The Checking Account Responsibility and Disclosure Act—is in order.

Image: Chris Young, via Flickr.com