Editorial Policy

Report: Consumers Want Transparent Checking Accounts

Marcia Frellick

July 28, 2011

Americans with checking accounts agree overwhelmingly that they want banks to be more transparent with terms, conditions and fees, even if that means more government oversight, according to results of a new survey by the Pew Health Group.

Results show a strong majority of account holders – and nine out of 10 adult Americans have checking accounts — are tired of rules buried in mountains of disclosure forms, of feeling vulnerable to overdraft fees and of trying to decipher complex and technical language.

“We did a report back in April that showed that the median length of disclosure documents for checking accounts was 111 pages,” says Susan Weinstock, director of Pew’s Safe Checking in the Electronic Age Project.

The April report projected that overdraft fees will cost American consumers an estimated $38 billion in 2011—an all-time high and up from $18.6 billion in 2000. The report also found overdraft penalties out of whack with the offense. The median overdraft amount is $36, yet the median overdraft penalty fee is $35.

“For a consumer to be able to figure out … the terms and conditions of their checking account is nearly impossible,” Weinstock says. “We’re seeing that we need a disclosure box similar to the Schumer box for credit cards (a clear summary of terms required by law) that would be a one-page document that would show the fees, the terms and conditions upfront.”

Highlights of the responses in the latest Pew study on checking accounts break down this way:

  • 83 percent would like to see banks provide a summary of overdraft options they offer, how the options work and a description of the fees.
  • 78 percent say banks should be required to provide a one-page summary of information about their checking accounts.
  • 70 percent want banks to be required to process transactions in the order in which they occur as opposed to processing them from highest dollar amount to lowest dollar amount, which can lead to more overdraft fees.

The call for stronger disclosure came from all political factions. It has solid majorities among Democrats, Republicans, Independents and those who align themselves with the tea party, according to the survey.

Even those who say they believe there is already too much or the right amount of government regulation supported requiring banks to do a better job about revealing fees and charges.

Democrats showed the strongest support (81 percent) for disclosure reforms and those in the tea party camp showed the smallest support, but still a majority, at 62 percent. The Pew data came from a national survey of checking account holders and has a margin of error of 3.5 percentage points.

Weinstock said she was surprised that the call for action crossed all political lines. “In this time when we’re seeing an incredibly divided government, here’s something that people agree on,” she says.

In light of the findings, the Pew Safe Checking project is calling on the new Consumer Financial Protection Bureau to force banks to make changes. The Bureau, which opened in July, is the federal government’s agency to protect consumers from financial fraud. It also gives consumers an outlet for their complaints on everything from student loans to payday lenders.

“We’re urging the CFPB to act on this. They have the authority now to implement new regulations to make checking accounts safer and more transparent and they can require banks to better disclose terms, conditions and fees associated with checking accounts,” Weinstock says.

Lauren Saunders, managing attorney for the National Consumer Law Center says that while the CFPB is a good start, she also notes that the federal Office of the Comptroller of the Currency has extended the public comment period until Aug. 8 for consumers to weigh in on pending OCC guidelines governing overdraft fees and payday loans. A form for comments is available on the Center for Responsible Lending site.

Saunders said she was not surprised by the results of the Pew study. “Banks have done a lousy job of telling people safe and affordable ways of covering overdrafts and in disclosing their fees,” she says. “They are getting ever more inventive with more hidden fees and Americans are fed up. They want to know what the affordable ways of being protected from overdraft fees are, rather than being shunted into the most expensive, dangerous forms of overdraft protection.”

As part of the project, Pew researchers developed a sample disclosure box and tested it with focus groups in Philadelphia, Minneapolis and Los Angeles. Groups were divided into 20-somethings and parents of 20-somethings, all of whom had opened a checking account in the last two years or who had helped their children open one.

“We saw different levels of knowledge,” Weinstock says. “The younger group seemed to know a lot more about overdrafts. Many seem to have overdrafted unknowingly and then gotten stuck with a fee on their debit cards.”

But the feedback was strong from all ages and geographies in terms of demand for a simple, concise explanation of terms, she says.
“Universally — in the focus groups and now in the survey — people want this,” Weinstock says.