How Consumer Friendly is Your Bank?
By Allie Johnson
July 9, 2013
Have you ever been surprised by a bank policy, hit with an overdraft fee due to a snafu or had problems resolving a dispute with your bank? If so, you know bank problems can be frustrating – and expensive.
That’s why the nonprofit Pew Charitable Trusts is pushing for banks to adopt more consumer-friendly practices so customers will have fewer problems and an easier time getting issues resolved when they do occur. In a May 2013 report, Checks and Balances, Pew ranked banks in three areas: disclosures, overdrafts and dispute resolution.
The good news? Many big banks have improved in the past few years. Here’s what they’ve done — and how my own bank, SunTrust, measures up.
Issue 1: Disclosure
It’s not easy to wade through dozens of pages of fine print to learn how a bank would handle certain scenarios and what they’d charge you. So, in 2011, Pew offered one top recommendation: Banks should show their main fees and terms for checking accounts in a uniform, easy-to-read box.
The recent Pew report shows that eight banks — including Bank of America, Capital One Bank, Citibank, Fifth Third Bank, JP Morgan Chase Bank and Wells Fargo — now use such a box.
I didn’t remember seeing a disclosure box when I opened a checking account at SunTrust about a year ago, so I was curious to see if it had adopted this practice. According to the report, though, it hasn’t.
But SunTrust does follow three other disclosure recommendations, including disclosing the amount of the overdraft transfer fee (what they charge to transfer your money from another account to cover an overdraft). They also reveal the overdraft penalty amount (what you get charged when the bank fronts the money for the overdraft), which typically is much higher. In the 36 banks Pew surveyed in the report, the median overdraft penalty was $35 compared with a median overdraft transfer fee of $10.
My bank also discloses the overdraft default option, based on Federal Reserve rules: A purchase or ATM withdrawal that would cause an overdraft will be declined unless customers specify ahead of time that they’d rather have the transaction go through and pay a fee.
Issue 2: Overdrafts
Sneaky bank overdraft procedures have resulted in lawsuits and ticked-off customers. According to the Pew report, a worst-case-scenario could cause a customer to rack up as much as $175 in overdraft fees in a single day.
So, Pew recommends several best overdraft practices, including posting purchases based on timing rather than on size (some banks post larger purchases first, leading to an avalanche of overdraft fees) and not allowing overdrafts at ATMs or stores. Pew also recommends five other practices, including a limit on the number of overdraft fees charged per day and a grace period to allow the consumer to deposit money into the account and avoid overdraft fees.
In the Pew report, only one bank — Charles Schwab Bank — got a perfect score for following all of the recommended overdraft practices. Other high-scoring banks in this category include Ally Bank, OneWest Bank and USAA Federal Savings Bank.
My bank didn’t stack up as well in this category: SunTrust follows only two of the recommended practices, including having a threshold amount to trigger an overdraft (preventing a $3 purchase from triggering a large fee) and putting a limit on the number of overdraft fees that can be charged in a single day.
Issue 3: Dispute resolution
If there is a dispute, it’s important that consumers be able to get it resolved fairly. So, Pew recommends that banks not force customers to agree to certain dispute resolution methods and stipulations when opening an account. Recommendations include no mandatory binding arbitration (which forces consumers to agree to use a private dispute resolution process rather than go to court) and no ban on class action lawsuits.
In this area, three banks — Ally Bank, Bank of America and Commerce Bank — got perfect scores.
SunTrust, however, got a mediocre score here: It follows one “best” practice — not using “lost costs and expenses” clauses that state that a consumer must pay the costs a bank incurs in resolving an account dispute. SunTrust also has an “opt-out option,” which allows consumers to opt out of mandatory binding arbitration. It also has a small-claims exemption, which means consumers can go to small claims court to resolve a dispute even if they have agreed to arbitration.
I’ve been fairly happy with my bank so far, but it was interesting to see how it stacks up next to other banks when it comes to consumer friendliness. It’s definitely something I’ll consider when deciding where to bank in the future.