When it comes to picking a bank, consumers often choose based on branch or ATM locations, instead of considering what's under the hood, such as overdraft fees and dispute resolution.
But even for consumers who have an eye out for these issues, many banks don't make it easy to find out what policies they have in place for checking account and overdraft fees and terms, as well as dispute resolution, according to a study published Tuesday from The Pew Charitable Trusts. Since 2013, Pew has studied policies and practices among the country's biggest banks, and it's found that while there's been some improvement, many banks continue to fall short in these crucial areas.
One out of 10 banks still have no daily limit on the number of overdraft fees that can be charged to consumers, for example, while almost nine out of 10 banks require customers waive the right to a jury trial in case of a dispute. Almost half of the banks use transaction reordering, which allows them to reorder a customer's daily bank-card purchases from largest to smallest, which increases the number of smaller transactions that could be subject to separate overdraft fees. The findings illustrate that while banks are improving on some fronts, voluntary disclosures still aren't enough to protect consumers, Pew said.
"The practice of reordering from high to low should be prohibited," Susan Weinstock, the director of Pew's consumer banking project, told CBS MoneyWatch. "There are still a lot of banks that are using that method to maximize overdraft fees. We can't wait around for every bank to say they'll give up that practice."
The Consumer Financial Protection Bureau (CFPB) should issue comprehensive rules that make sure banks are issuing clear disclosures on their practices, while also making sure that checking accounts are safe for all consumers, Pew said. The bureau, which has studied overdraft fees and practices, said in a statement that it "continues to make overdraft issues a priority and is currently weighing what consumer protections are necessary for overdraft and related services. Overdraft is also an item listed on our most recent rule agenda."
Several banks landed at the bottom of Pew's list for best and good practices for checking accounts, overdraft fees and dispute resolution.
The three banks that earned the worst marks are ETrade Bank, FirstMerit (FMER) and Bank of the West. None of the banks immediately returned requests for comment. According to Pew, Etrade offers only one out of seven best practices and five out of 11 good practices. FirstMerit, a bank focused on Midwestern states such as Ohio and Michigan, and San Francisco-based Bank of the West have only one best practice and six good practices.
Still, the report isn't intended to be an "endorsement or a dissing of any bank," Weinstock noted. Some issues that might be important to some consumers, such as ATM fees, weren't considered in this report, she pointed out.
Policy and practices disclosures are important because they allow consumers to compare banking policies and make the best decisions on what's important to them, similar to how one might pick up two cans of soup at the grocery store and compare sodium, fat or calories, Weinstock noted.
Pew recommends banks use a disclosure box that sets out policies clearly and cleanly, such as how much they charge for overdrafts or using ATMs out of their networks. Almost eight out of 10 banks have now adopted a summary disclosure box that meets Pew's standards, up from only one-quarter of banks in 2013, the report found.