From debit card fees to overdraft charges, consumers need clearer policies from their banks to understand checking accounts, according to a report released by the Pew Charitable Trusts.
The report identified seven “best” practices and 11 “good” practices that protect consumers by ensuring banks properly disclose relevant information, reduce or eliminate overdraft fees, and provide fair dispute resolution.
The extent to which banks are transparent varies considerably. Out of the 36 banks considered by Pew, eight of them had 12 or more good and best practices combined, with Ally Bank following the most practices. Meanwhile, six banks followed with five or fewer. First Niagara, which observed no best practices and only five good practices, had the lowest possible score.
One of the best practices requires what many consumers would consider the bare minimum. It recommends the use of a summary disclosure box on the checking account agreement form that would identify all the fees and policies for accounts. “Consumers should not have to hunt for this important information about their account,” Susan Weinstock, director of the Safe Checking Project at Pew Charitable Trust, told 24/7 Wall St. in an interview. A box disclosing this “should be like a nutrition label.”
The good practices are “those that provide some protection to consumers but are not as expansive or effective as best practices.” For example, good practices include the disclosure of penalty fees for overdrafts and identifying the overdraft default option.
Five of the six banks with the lowest scores according to Pew’s measure only observed one best practice. Dispute resolution agreements for these banks, like nearly all the 36 banks considered, do not require customers to cover bank expenses, such as attorney fees, even if the customer wins the dispute. Weinstock said this “heads-I-win, tails-you-lose” provision could discourage consumers from fighting unnecessary charges in their accounts. First Niagara Bank failed to observe even this best practice.
The banks on this list performed poorly in many of the good practices as well. For example, none of these banks let customers know they had options for avoiding overdraft fees. Nor did any of these banks provide a grace period before charging overdraft fees.
Only two of the banks, Sovereign Bank and BBVA Compass, disclosed the fee for overdraft transfers — a practice that allows money to be transferred from another account to prevent negative balances. Of the six least transparent banks, only First Tennessee included a dollar amount that an account holder must overdraw before being charged an overdraft fee.
Based on the 50 largest banks in terms of total deposits measured by the Pew Charitable Trust report, “Checks and Balances: Measuring Checking Accounts’ Safety and Transparency,” 24/7 Wall St. identified the six least transparent banks. These banks have implemented one or fewer of the seven best practices. In addition, the banks implemented four or fewer of the 11 good practices that Pew identified. While Pew initially considered the 50 largest banks, 14 of the banks did not provide information, narrowing the field to just 36 banks. According to Pew, this information was compiled in October and November of 2012. As a result, some banks’ practices may have changed since that time.
These are America’s least transparent banks.