You can't comparison shop if you don't know what you're getting. And that's what happens, in many cases, when people open a checking account, according to a study from the Pew Charitable Trusts.
The report, released Thursday, looked at the disclosure practices for basic checking at 36 of the nation's largest banks.
"There's room for improvement," said Susan Weinstock, director Pew's Safe Checking in the Electronic Age Project.
While some banks do a good job in certain areas, Pew found that the industry doesn't always make it easy for customers to know all the charges, fees and penalties—especially overdraft charges—associated with their checking accounts.
"Hidden fees are a problem," Weinstock said. "We know that hidden fees push people out of the banking system and we don't want that. We also want a marketplace where consumers can shop around based on the fees and terms and conditions. If disclosures are poorly done or hard to read or too long, then people can't shop around."
For this report, Pew defined "best practices" as policies and procedures that:
- Provide checking account holders with clear and concise disclosure about costs and terms;
- Reduce overdrafts and eliminate practices that maximize overdraft fees;
- Do not require all problems to be settled by binding arbitration, but allow other dispute resolution options .
No bank provided all best practices or even good practices in each of these categories, but 97 percent had at least one best practice. And two of the country's largest financial institutions, Citibank and Bank of America, made the Top 5 list.
Ally Bank, an Internet-only banking service, was the leading bank in this study. The other highest-performers in order are: Charles Schwab Bank, First Republic Bank, Citibank and Bank of America.
Pew had hoped to survey the top 50 U.S. banks for this report, but the data from 14 of them was not available online or by mail. Customers could only get this information by visiting a branch office.
"It's another reason why we think the Consumer Financial Protection Bureau (CFPB) should get involved," Weinstock said. "Consumers can't shop around if banks don't make the information available to them, let alone make it hard to read. If it's not available at all, that's even worse."
Pew wants the CFPB to write new rules for checking accounts that would require banks to:
- Summarize key information about terms and fees in a concise uniform format: The study found that the median length of the account agreement and fee schedule at the 36 banks studied was 43 pages—and that doesn't include the pages that describe the product. We have federally required uniform labels on food products and for credit cards. Pew believes we need uniformity for checking accounts disclosures.
- Provide account holders with clear, comprehensive terms and pricing information for all available overdraft options: Pew believes many people are confused and sign up for expensive overdraft protection without knowing it or realizing there are cheaper options.
- Make overdraft penalty fees reasonable and proportional to the cost of providing the overdraft loan: Most of the banks surveyed (86 percent) charge between $30 and $40 per overdraft. Pew believes that's too much.
Bankers Don't See a Need for Any Changes
Nessa Feddis, a vice president and senior counsel at that American Bankers Association (ABA), agrees with the report's premise that disclosures should be clear and easy to spot. And she told me she believes that's what's happening.
"Transparency is important to banks since that's how they compete for customers," said Feddis, "but federal law already requires banks to provide terms and fees in a clear and conspicuous manner."
Feddis points out that 18 financial institutions, including some of the largest banks and credit unions in the country, have already voluntarily adopted the uniform disclosure box developed by Pew. But she said financial institutions need the flexibility to provide information in a way they believe best suits their products and customers.
"Reasonable minds might disagree with what Pew considers best for the consumer," she said. "One size does not always fit all."
The ABA is opposed to any rule that would prohibit mandatory arbitration clauses, limit overdraft charges or require additional disclosure.
"People understand what they are signing up for," Feddis said. "Most people don't pay overdraft fees and they are easily avoided."
And she noted that bankers are already required to give customers a "one-page, easy-to-read, consumer-tested notice" before they sign up for overdraft protection. This notice explains the product and points out that there are cheaper alternatives.
What do you think? Should there be a federal rule that requires a simple, uniform disclosure box for all checking accounts? Would you like to see the federal government limit overdraft fees? Go to the ConsumerMan Facebook page and discuss.
_ By Herb Weisbaum, NBC News.