Under pressure from regulators, and increasingly sensitive to consumer complaints, many banks are adopting shorter, more concise, and easier to understand disclosures to their checking account fees.
Customers in the past have needed detective skills and magnifying glasses to scour account agreements that ran for more than 40 pages to figure out exactly which fees applied to their checking accounts. But now, more than 20 banks, including Bank of America, Citizens Bank, and Sovereign Bank, have condensed small booklets of fine print into a two- to four-page list of service fees to help consumers understand the costs of their accounts.
The summaries tell customers what they will pay for a variety of transactions, such as using an ATM outside of the bank’s network, maintaining a dormant account, and participating in the bank’s overdraft plan.
“It’s an important step,” said Susan Weinstock, the director of the Safe Checking Project at The Pew Charitable Trusts. “This is a fundamental product. Over 90 percent of Americans hold [checking accounts] product, but it’s difficult to comparison shop.”
Hidden fees have long been an irritant to customers, particularly in recent years as banks, squeezed by a weak economy, low interest rates, and shrinking profit margins, increased old fees and added new ones to increase revenues. Commercial and savings banks reported $34.2 billion in services charges on deposits in 2012, a decline since they peaked in 2008 at over $42 billion, according to the Consumer Financial Protection Bureau.
The bureau, as well as the Federal Reserve, have pressed banks to make it easier for customers to know and understand the fees that come with their checking accounts.
Pew, a nonprofit public policy organization, has advocated for reforms to bank fees disclosure and practices. Pew developed a consumer-friendly disclosure template that is in a table format and categorizes charges by basic account use fees, charges for overdrafts, and an explanation of how expenses are processed by the bank. A growing number of banks have followed Pew’s format since it was developed in 2011, including Citizens Bank and Sovereign Bank, which adopted new disclosure forms this month.
Pew developed a consumer-friendly disclosure template that many banks are following.
Sovereign Bank groups the fees in simple to understand categories such as “managing your account,” “using your ATM or debit card,” and “overdraft options.”
Along with the form, Citizens Bank has also posted a tutorial video online to help customers understand the various overdraft options.
“We’re always looking for ways to improve the experience,” said Scott Young, the director of service quality and customer experience at Sovereign Bank, which is based in Boston but owned by Spanish banking giant Banco Santander SA. “This is something we take quite seriously.”
While many banks are adopting simpler disclosures, the quality of the information varies, according to Pew and other consumer advocacy groups. For example, some banks specify the cost of getting a paper statement, making a wire transfer, or replacing a lost card quickly. Others don’t include those fees in their simpler disclosure.
In addition, the fee schedules are occasionally difficult to find on bank websites. Sovereign, for example, calls its fee and account information “Simple Facts,” which may not be obvious to customers looking for information about bank charges on the website, said Odysseas Papadimitriou, the founder of WalletHub, a personal finance website based in Arlington, Va.
WalletHub reviewed and rated the checking account transparency of 25 banks nationwide and found a wide variation. At the time of the report, Sovereign received a low score because it did not provide information on its website. Sovereign’s updated disclosure, adopted this month and available online, should improve its score, Papadimitriou said, but there is still room for improvement.
WalletHub found that the average checking account has about 30 fees. In recent years, the most troublesome has been overdraft charges, Weinstock said. In 2010 the Federal Reserve changed the regulations so banks could no longer automatically enroll customers in overdraft protection programs.
What this meant was a customer might use debit cards to buy a cup of coffee, and accidently overdraw an account. Instead of rejecting the payment, banks would cover the couple of dollars, then, to the customer’s surprise, also tack on an overdraft fee of nearly $40.
Under the new Fed rules, customers must opt-in, or sign up for the program. A handful of banks have gone further and don’t allow customers to overdraw accounts when using debit cards at ATMs, grocery stores, or other merchants, according to Pew. Others have also stopped the practice of reordering debit transactions from highest amount to lowest, instead of chronological order, to prevent frequent overdrafts.
Bank of America, which prevents overdrafts on debit transactions, has noticed its complaints on that topic drop off in recent months, said Andrew Plepler, a consumer policy executive for the bank.
“It was not a painless decision for the company from a financial perspective,” Plepler said. “But you do what’s in the best interest of the customer and that it gets recognized in the marketplace, particularly in this environment.”
No bank has adopted all of Pew’s recommended best practices for disclosure, overdraft, and complaint resolution, Weinstock said. Federal regulators may also need to step in to make sure that banks don’t reverse these recent improvements and that more of them adopt uniform standards, Weinstock said.