Hidden fees in checking accounts put consumers at financial risk

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Checking accounts still have traps that unfairly cost consumers billions in fees, according to a follow-up report from Pew Charitable Trusts.

"There continue to be key banking practices that put consumers at financial risk and potentially expose them to high and unexpected costs for little benefit," the report said.

Much of the problem stems from long and confusing disclosure documents that, despite being voluminous, leave out key information consumers need to avoid being blindsided, the Philadelphia-based nonprofit charitable research group said.

Pew said there has been little improvement since its previous checking account study in 2011.

In the latest report, Pew reviewed some 270 checking account offerings at the nation's 12 largest banks, including Pittsburgh-based PNC Bank, plus the 12 largest credit unions.

Among the findings:

• Important policies and fee information are not summarized in a uniform, concise and easy-to-understand format that allows customers to compare account terms. The median length of checking account disclosure statements in the survey was 69 pages for banks and 31 pages for credit unions.

• Financial institutions do not give account holders clear and comprehensive information about options for covering overdrafts. As a result, consumers may not be aware of lower-cost options, Pew said.

• While the median overdraft penalty in the study remained at $35 for banks and $25 at credit unions, a higher percentage of accounts have started to charge extended overdraft fees, which are extra charges assessed when an account remains negative for a certain number of days. In addition, the median extended overdraft fee rose 32 percent from the last survey to $33 from $25, while the fee for automatically transferring money from another account to cover an overdraft rose 20 percent to $12 from $10.

The report also criticized the common policy of reordering checks and debit card transactions to process them from highest amount to lowest, a practice that tends to drain an account more quickly and trigger the most overdraft fees.

Eight of 12 banks, including PNC, had a stated policy of reordering high-to-low.

PNC has said it posts high-to-low to give priority to customers' most important bills, such as mortgage or car payments.

Based on their disclosures, the policies at credit unions were not as clear.

Pew is urging the U.S. Consumer Financial Protection Bureau to require financial institutions to adopt a standard, one-page disclosure box serving as a "nutrition label" for checking accounts. The box would outline major checking account terms, including the order in which withdrawals and deposits are processed, so consumers could comparison shop for an account.

The group noted that Chase and the online bank TD Bank had voluntarily adopted the recommended disclosure box, while Bank of America and Citibank committed to doing so in the coming months.

The group also wants regulations prohibiting financial institutions from manipulating transactions in a way that maximizes overdraft fees.

"Even responsible consumers can't keep track of checking account balances if the bank is reordering withdrawals," said Susan Weinstock, director of Pew's Safe Checking in the Electronic Age Project.

Pew said the Consumer Financial Protection Bureau also should limit overdraft fees, which it called "excessive," to ensure that the charges were "reasonable and proportional" to what it costs to provide the service. Overdraft fees cost consumers an estimated $30 billion in 2011, Pew said.

For Pew's report: "Still Risky: An Update on the Safety and Transparency of Checking Accounts," visit www.pewtrusts.org.


Patricia Sabatini: psabatini@post-gazette.com or 412-263-3066. First Published June 8, 2012 12:00 AM


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