Change doesn't always come quickly, but in increments. The Pew Charitable Trusts' fourth in depth look at checking account practices at America's largest banks, Checks and Balances: 2014 Update, finds some improvements in the industry in the past year, but also stagnation in areas that need work and others that are actually worse.
Pew's analysis of best practices includes looking at whether the institution provides checking accountholders with clear and concise disclosure about costs and terms; whether it is reducing the incidence of overdrafts and eliminating practices that maximize overdraft fees; and whether it offers people a real choice when it comes to trying to solve a problem with their bank, rather than including mandatory binding arbitration clauses in checking account agreements.
With that criteria in mind, Pew's report shows that banks have made significant progress when it comes to their disclosure practices, including increased transparency of overdraft policies. Forty-three percent of the 44 banks it examined have adopted a summary disclosure box of terms and fees that meets all of Pew's criteria, a marked increase from 22% in 2013. Twenty six banks and credit unions have worked with Pew to voluntarily adopt a model disclosure box for checking accounts, accounting for nearly 45% of the deposits in the United States. Also impressive is the six other banks that on their own adopted a summary disclosure box that meets all of Pew's criteria. According to Pew, more banks are also making their account agreements and fee schedules available online.
However, while some overdraft practices have improved, for example, some now have a threshold amount before an overdraft fee is charged and limit the number of overdraft fees you can rack up in one day, the same number of banks allow people to overdraw their accounts with their debit card at the cash register. Banks go further still in putting salt on the wound by charging extended overdraft fees, which are incurred when you don't pay back an overdraft loan and the fee within a certain number of days, typically five.
"Overdrafts are still probably the biggest concern," says Susan Weinstock, director of Pew's Safe Checking in the Electronic Age Project. "Half of the banks are still recording from high to low, which maximizes the fees you pay and you don't realize what's happening. It's hard for you to manage your account and track funds. It's a real problem. The Consumer Financial Protection Bureau should prohibit the practice," says Weinstock.
The percentage of banks that disclose that they deny ATM withdrawals that would overdraw a checking account is virtually unchanged. It was 20% in 2014, compared with 19% in 2013. Although the number of banks preventing ATM overdrafts in the study was about 1 in 5 in 2013, and one in four this year, the impact on customers at banking institutions that have adopted this practice can be significant, according to the report.
Weinstock applauds the fact that banks are increasingly turning to disclosure boxes, trouble is, they are not uniform. "Unlike a nutrition label, it's hard to make apples to apples comparison. The CFPB should set a standard, so whether you're looking at a commercial bank or a credit union you can see what's out there and have enough information to make the best choice based on your needs," says Weinstock.
Dispute resolution policies still need work too. According to the report, more banks have included additional limitations on dispute resolution options, such as requiring customers to waive their rights to join a class-action suit. But fewer banks have "loss, costs, and expenses" clauses, which require customers to reimburse the bank's loss, costs and expenses should the customer pursue a dispute, no matter the outcome of the case.
"Dodd-Frank requires the bureau to study the issue. With the prevalence of dispute resolution limitations, the CFPB should go further. I would like to see them start the rulemaking process," says Weinstock.
Meanwhile, Pew continues to offer a helping hand to banks that want guidance on developing disclosure boxes and on their overdraft practices.
As for consumers, says Weinstock, "Now that there is greater transparency, it's up to the consumer to take that information and ask questions when they go to the bank."