Checking accounts are essential financial products, used by 9 in 10 American households, and they need to be safe, fair, and transparent.1 Yet the formal disclosure documents outlining account fees, terms, and conditions are often long, unintelligible, and opaque. Overdraft and transaction processing practices can result in surprise fees, and arbitration terms can limit a customer’s legal rights in the event of a dispute. Three times since 2013, The Pew Charitable Trusts has evaluated the disclosure, overdraft, and dispute resolution policies and practices of the largest retail banks in the United States. (See the Methodology for details on how these data are collected and verified.) These institutions hold approximately 66 percent of all domestic deposits. Pew’s Model Summary Disclosure Box for Checking Accounts served as the template for rating each bank’s disclosure documents.2 We used each bank’s fee schedule, disclosure documents, account agreement, and other supplemental materials to determine whether the bank engaged in best or good practices for overdraft and dispute resolution.
What does it mean for a bank to be transparent? Here are the guidelines that Pew has developed (and urged the Consumer Financial Protection Board to adopt):
- Summarize key information about terms and fees in a concise, uniform format.
- Provide accountholders with clear, comprehensive terms and pricing information for all available overdraft options.
- Make overdraft penalty fees reasonable and proportional to the financial institution’s costs in providing the overdraft loan.
- Post deposits and withdrawals in a fully disclosed, objective, and neutral manner that does not maximize overdraft fees.
- Prohibit, in checking account agreements, pre-dispute mandatory binding arbitration clauses, which keep accountholders from accessing courts to challenge unfair and deceptive practices or other legal violations.
The full report my seem a bit wonky for a high school student but even discussing Pew’s recommendations will help students understand the importance of overdraft fees and how banks can take steps to maximize the fees they collect from accountholders (top 3 banks earned $1 billion on these fees in the first three months of 2015 alone)