Millions of Americans blame the financial crisis entirely on
big Wall Street banks. Raising their ire even more is the fact
that many of those banks got huge bailouts at the government's
expense, often while rank-and-file taxpayers struggled to make
ends meet or got kicked out of their own homes.
The least banks could do, at least as many people see it, is
to treat their customers well. But a recent study from the Pew
Charitable Trusts shows that with their most basic product, the
checking account, banks still fail to give account holders the
information they need in a clear and readily available way.
Why it matters
Nine out of 10 Americans use a checking account, which by itself
makes it a key component of nearly everyone's personal finances.
Not only do checking accounts make it easier for people to save
and manage their money, but they also form the foundation for
other key components of your financial life, including building a
credit history.
But as the Pew report reveals, banks don't do everything they
can to make the way they provide those accounts clear. In
particular, the study made the following findings:
- Account disclosures are far too long, and most banks don't
provide information in a concise, simple format that allows
easy comparisons among different institutions.
- Specifically with respect to
overdrafts
, banks don't always provide information about all the options
that account holders have, including the relevant features and
costs associated with each option. In addition, banks have made
big increases in overdraft fees nearly across the board, with
overdrafts typically costing $35 at banks and $25 at credit
unions. And even worse, banks arbitrarily put same-day
withdrawals in an order that's most likely to maximize
overdraft fees, often without disclosing exactly how they
determine the order.
- Banks limit customers' ability to pursue remedies for
disputes, with the majority requiring binding arbitration
rather than affording the option of a jury trial.
Admittedly, banks don't do
everything
they could to maximize fees. For instance, the report cites
Wells Fargo
(
WFC
) ,
JPMorgan Chase
(
JPM
) ,
TD Bank
(
TD
) , and
BB&T
(
BBT
) as all specifically telling their customers that any deposits
for a given day would be posted
before
withdrawals for the same day are processed. With the availability
of online banking, you can often find out about a pending
overdraft before it actually happens and then make a last-minute
transfer or deposit to avoid any actual overdraft from
occurring.
But the report highlights the fact that there aren't
established rules for all of these practices, giving banks a lot
of latitude to implement fee-increasing policies. Given the
hunger that most banks have to try to make up for lost income
during the financial crisis, customers should assume that banks
will typically choose ways to increase their revenue when laws
and regulations allow them to do so.
Stay safe
The one thing you need to remember about
banking is that it's a service
, and it's only reasonable for banks to want to profit from it.
In many ways, the fact that customers have free-checking options
available to them at all is a gift, given that
certain checking-account transactions incur costs for the
bank.
But as recent moves by
American Express
(
AXP
) , Chase, and others toward
prepaid cards
-- which happen to be subject to less regulation than traditional
debit cards -- show, financial institutions will naturally
gravitate toward areas that have the most profit potential. As
the Pew report concludes, it will likely take additional
regulation from the Consumer Financial Protection Bureau or other
regulatory agencies to change bank behavior on the
checking-account front. And even if it happens, you can expect
banks to try to make up for any lost opportunities by targeting
other products.
One way to benefit from bank fees is to invest in the banks.
But in a sea of mismanaged and dangerous peers, one bank stands
out as
The Only Big Bank Built to Last
. You can uncover the top pick that both we and Warren Buffett
love today in our new report. It's free, so click here to access
it now.
Fool contributor Dan Caplinger owns warrants on JPMorgan
Chase. You can follow him on Twitter @DanCaplinger. The Motley
Fool owns shares of JPMorgan Chase and Wells Fargo. Motley Fool
newsletter services have recommended writing a covered strangle
on American Express. Try any of our Foolish newsletter services
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