April 17, 2024

Bucks: To Open an Account, 111 Pages of Fine Print

While you are opening that new checking account, don’t forget to read the accompanying 111 pages of legal fine print that go along with it.

How many pages?

A new study from the Pew Charitable Trusts found that 111 pages is the median length of checking account disclosure documents given to customers by the 10 biggest banks in the United States.

Often nestled in the thicket of disclosures, schedules and related addenda are rules that favor the bank over the customer. These include binding arbitration clauses, which require any dispute over the contents of the agreement to be settled by a private arbitrator — usually one picked by the bank — instead of a judge. Other versions allow customers to take their case to court, but require them to cover the bank’s costs — even if the customers are found to be in the right.

An excerpt from a PNC Bank disclosure, included in the report, even states that such funds will be withdrawn from your account “without prior notice to you.”

The report, on “hidden risks” in checking accounts, notes that the new Consumer Financial Protection Bureau has already been asked by Congress to look into such mandatory arbitration clauses.

Pew recommends that the bureau require banks to summarize crucial information about fees, account terms and conditions in a short, plain-language format, similar to the so-called Schumer Box now used for credit cards. That would make it easier for consumers to compare accounts and avoid costly fees.

Pew also recommends that regulators require banks to post deposits and withdrawals in an “objective” way — like chronological order — to minimize instances when banks reorder postings to increase fees from bounced checks. Most banks post checks in order of highest dollar amount to lowest, which tends to maximize the bounced check fees. Banks can also process debits to the account before posting deposits.

Pew provides a clear illustration of the effect of this method, in a chart based on a recent court challenge of Wells Fargo’s daily transaction-posting policy. The chart shows that posting deposits and debits in chronological order would result in fees of $22, while Wells Fargo ordered them in a way that the customer ended up owing $88.

Citibank, in a departure from its big bank peers, recently announced that it would start processing checks in in “low to high” order to minimize potential fees for overdrawn accounts. But it remains in the minority.

“Since we collected our data, some banks have said they’re changing this policy,” said Eleni Constantine, director of Pew’s financial security portfolio. “But it’s voluntary. They could go back to what they were doing before, anytime they want to.”

The Pew report also found that consumers are not given enough information to compare the various overdraft options — that is, protection against overdrawing your account by debits or bounced checks — offered by their banks.

Usually, a transfer plan, in which funds are moved from the customer’s savings account or credit card to cover shortages in the checking account, is significantly cheaper, at about $10 a transfer. But many banks promote more expensive options in which the bank pays the shortage and charges a fee — typically $35.

Have you read your checking account disclosure? Did you understand it? Did anything in it surprise you?

Article source: http://feeds.nytimes.com/click.phdo?i=c2b3147552dbacef972494438bb798ff