Pew: Bank overdraft policies 'impossible to read'
Read any good bank disclosure forms lately?
Researchers at the Pew Charitable Trusts carefully read checking account disclosures from 12 of the nation's largest banks and 12 of the largest credit unions to see what a new customer would face.
In a just-released report, Pew says the disclosure documents are long and confusing, which can result in costly and unexpected penalty fees for overdrawing that account.
Susan Weinstock, director of Pew's Safe Checking in the Electronic Age Project says many people don't read these disclosure documents because, as she puts it, "They're impossible to read."
"The forms are long and confusing. The text is very dense. It's a lot of legalese and very hard for a consumer to wade through," she said. "They make it pretty complicated."
Pew says financial institutions do not summarize important policies and fee information in a uniform, concise and easy-to-understand format that allows customers to compare account terms and conditions.
And these documents are LONG.
The median length of the checking account disclosure form at the banks was 69 pages and 31 pages at the credit union.
Another problem: there are no consistent names for the same fee.
"Credit unions had eight different names for 'overdraft penalty fee,' while banks used five different names for 'extended overdraft penalty fee,'" said Weinstock.
This inconsistency makes it difficult to comparison shop for a checking account.
One more significant finding in the PEW study: all 12 banks surveyed either reorder withdrawals from highest to lowest dollar amount or reserve the right to do so without notice to the customer, thus maximizing overdraft fees.
There are no federal rules that spell out how financial institutions should process checking account transactions; it's up to the bank or credit union.
This makes it possible to maximize overdraft fees by processing deposits and withdrawals in a way that reduces the account balance as quickly as possible.
By one estimate, Americans paid $29.5 billion in overdraft fees last year. Weinstock says this practice should be banned.
"We don't see any point for this, except that it maximizes overdraft fees," she said. "Even a responsible consumer who wants to try to know what their balance is can't if the bank is busy reordering your transactions trying to jack up the fee."
Nessa Feddis, spokesperson for the American Bankers Association, questions Pew's findings and conclusions.
"They seem to be saying that they don't have much confidence in American consumers or their choices," she said.
Feddis says she's checked account disclosures for the biggest banks and didn't find any that had anywhere near the number of pages that Pew reports.
"Some of these disclosures are required disclosures, like there are seven pages for the funds availability disclosure and there are several pages for the privacy disclosures," she said.
Feddis says many banks now process withdrawals from low to high, or in consecutive order. But she insists financial institutions should not be required to handle them that way. She says people's preferences vary, and some customers might want certain transactions processed from high to low.
More information:
Banks still gouging customers with confusing overdraft rules
Researchers at the Pew Charitable Trusts carefully read checking account disclosures from 12 of the nation's largest banks and 12 of the largest credit unions to see what a new customer would face.
In a just-released report, Pew says the disclosure documents are long and confusing, which can result in costly and unexpected penalty fees for overdrawing that account.
Susan Weinstock, director of Pew's Safe Checking in the Electronic Age Project says many people don't read these disclosure documents because, as she puts it, "They're impossible to read."
"The forms are long and confusing. The text is very dense. It's a lot of legalese and very hard for a consumer to wade through," she said. "They make it pretty complicated."
Pew says financial institutions do not summarize important policies and fee information in a uniform, concise and easy-to-understand format that allows customers to compare account terms and conditions.
And these documents are LONG.
The median length of the checking account disclosure form at the banks was 69 pages and 31 pages at the credit union.
Another problem: there are no consistent names for the same fee.
"Credit unions had eight different names for 'overdraft penalty fee,' while banks used five different names for 'extended overdraft penalty fee,'" said Weinstock.
This inconsistency makes it difficult to comparison shop for a checking account.
One more significant finding in the PEW study: all 12 banks surveyed either reorder withdrawals from highest to lowest dollar amount or reserve the right to do so without notice to the customer, thus maximizing overdraft fees.
There are no federal rules that spell out how financial institutions should process checking account transactions; it's up to the bank or credit union.
This makes it possible to maximize overdraft fees by processing deposits and withdrawals in a way that reduces the account balance as quickly as possible.
By one estimate, Americans paid $29.5 billion in overdraft fees last year. Weinstock says this practice should be banned.
"We don't see any point for this, except that it maximizes overdraft fees," she said. "Even a responsible consumer who wants to try to know what their balance is can't if the bank is busy reordering your transactions trying to jack up the fee."
Nessa Feddis, spokesperson for the American Bankers Association, questions Pew's findings and conclusions.
"They seem to be saying that they don't have much confidence in American consumers or their choices," she said.
Feddis says she's checked account disclosures for the biggest banks and didn't find any that had anywhere near the number of pages that Pew reports.
"Some of these disclosures are required disclosures, like there are seven pages for the funds availability disclosure and there are several pages for the privacy disclosures," she said.
Feddis says many banks now process withdrawals from low to high, or in consecutive order. But she insists financial institutions should not be required to handle them that way. She says people's preferences vary, and some customers might want certain transactions processed from high to low.
More information:
Banks still gouging customers with confusing overdraft rules
