Readers of DepositAccounts.com know that account disclosures at many banks and credit unions give the institutions far too many rights. The example that we have discussed many times on this blog has been the early withdrawal penalty and the right of the institution to increase this penalty on existing CDs. Two credit unions have already done this, and they justified it due to a generic change clause in their account disclosures.
Here's another example of language in disclosures that give banks and credit unions too many rights. According to this Los Angeles Times article, some banks and credit unions have checking account disclosures which require customers to pay all costs in legal disputes, and that's even in cases in which the customer wins in court.
The LA Times article cites researchers for the Safe Checking in the Electronic Age Project of the Pew Charitable Trusts for finding this provision in disclosures from the following 4 banks and 1 credit union:
According to the LA Times article, these provisions may not be enforceable:
Consumer law experts said the provisions are on shaky legal ground. But including them in disclosures might have a simple goal: scaring customers away from going to court at all.
The LA Times reporter contacted officials at the above banks and credit unions and asked them to comment on this provision in their disclosures. Only BB&T and HSBC provided substantial responses. Spokespersons for both banks suggested that the provision was intended to be applied in disputes between the customer and another person, not the bank.
It seems banks will often downplay provisions of their disclosures when a customer questions the bank. Unfortunately, that doesn't help the customer if and when the bank decides to act upon the provision. That was the case with Fort Knox Federal Credit Union when it decided to increase the early withdrawal penalty on members' existing CDs based on a generic change clause in the membership agreement. If banks and credit unions expect their customers to abide by their disclosures, they should make sure all provisions in their disclosures are understandable and fair.
Thanks to the readers who notified me of this article, and thanks to reader me1004 who posted on it in this forum thread.