Pew Charitable Trust, known for its brutally factual reports, has just released its latest effort on the worst banks for transparency and what it discovers might be troubling to some. Think you bank with the best? You might not agree after reading the findings outlined in the report.
As we know, banks, over the past few years, have taken a beating. Granted, it’s been one of those “you brought it on yourself” situations, but nonetheless, the American bank model is clearly at a crossroads: either change with society or continue down the path that will have it as antiquated as a Victrola.
Unfortunately, either the bank leaders haven’t caught on that the higher the pedestal, the harder the fall or they believe there’s going to be some saving grace that will once again catapult them to the top. As we’re preparing to go to press, a hearing is underway with the U.S. Senate Committee on Banking, Housing and Urban Affairs. Everyday consumers, who were raised to trust the banks, trust the government and not lose faith in the American Dream are testifying. Unfortunately, the message they’re bringing is one that echoes families’ concerns around the nation: the faith is gone.
When 40 percent of middle class American families are relying on credit cards to buy groceries (and they’re not charging groceries for the sake of rewards points, either), then there’s no denying the problems are alive and well. To realize that the banks have made little progress in customer relations is simply disheartening.
In the meantime, here’s the latest on the Pew Report (and we’ll highlight the current hearing in its entirety in a later report). We start by providing background information on the criteria outlined in the report, “Checks and Balances: Measuring Checking Accounts’ Safety and Transparency”.
One of the best practices, explains Susan Weinstock, director of the Safe Checking Project at Pew, is complete transparency. Qualifying for “good practices” would be efforts to provide at least some protection to consumers in clear language that’s easily found on everything from penalties to explaining overdraft default options that might be available (or not available, for that matter).
As she explains,
Consumers should not have to hunt for this important information about their account…(it) should be like a nutrition label.
On the flip side, the bare minimum would include a summary disclosure box on the new account agreements that would at least let the customer know there are fees and policies – even if they’re not immediately provided to those customers. There were banks that didn’t even meet those minimum standards.
Particularly troublesome is the dispute resolution agreement.
Nearly all the 36 banks considered do not require customers to cover bank expenses, such as attorney fees, even if the customer wins the dispute,
Weinstock said and that this
heads-I-win, tails-you-lose’ provision could discourage consumers from fighting unnecessary charges in their accounts.
The report took into consideration thirty six of the nation’s most well known and biggest banks. It found that just eight of those banks had at least one of the twelve best practices outlined by the Pew Charitable Fund’s Best Practices. The six least transparent banks had only one or no transparent policies.
From worst to best, here are some of the results -
- First Niagara – Incorporates none of the best practices. It lacks clear policies regarding debit card fees, overdraft charges, checking accounts and credit requirements. Further, it didn’t even meet the dispute resolution agreement standard.
- BBVA Compass – This bank incorporates one best practice and 4 good practices. This bank’s branches are found in the south and southwest and it’s a subsidiary of Compass Bancshares. Along with First Niagara, BBVA Compass had “some of the worst policies and transparency among all banks”. The bank does not incorporate reordering options when it comes to multiple checks attempting to clear when the balance is too low in a checking account. Most banks have adopted policies that allow the smaller checks to clear before one big check does. This keeps NSF charges lower for consumers. What’s most interesting is that it was ordered to pay $11.5 million in July 2012 to settle allegations that included manipulating checking account transactions in order to collect more overdraft fees.
- First Tennessee Bank also fared poorly with just one best practice and 4 good practices. This bank operates only in Tennessee and has close to 200 branches scattered across that state. It provided no disclosures at all regarding fee structures and overdraft policies. Customers aren’t told of their options regarding overdrafts, either – such as opting for a pull from a savings account to cover a NSF check. Not only that, but it also does not offer opt-out arbitration, which puts consumers at a disadvantage. Despite those black marks, it’s interesting to note that First Tennessee is the only bank that allows overdrafts up to a certain point before it triggers an overdraft fee.
- Sovereign Bank mirrors First Tennessee and First Niagara with the same one best practice and four good practices dynamic. This is one of the largest banking entities in Spain, but has more than 700 branches in the U.S. along with more than 2,000 ATMs. It offers no policy on how many overdrafts an account can accumulate in a single day, which most banks do offer these days in order to keep those NSF fees down and prevent a massive problem with the consumer’s finances.
- Union Bank, based in San Francisco, is a subsidiary of Mitsubishi UFJ Financial Group. It operates in the west and midwest, with more than 400 branches scattered around California, Texas, Oregon and Washington State. It doesn’t allow new customers to opt out of arbitration, and it also failed to provide a threshold for its overdraft fee triggers. Those applying for new accounts aren’t even made aware of the policies, either. This is another bank that was forced to pay millions in fines after it was found to charge debit card transactions in a different order other than chronological. The goal, of course, was to generate more overdraft fees.
- Key Bank has only three good practices and one best practice. It’s considered more of a “full service” bank that offers investment banking, credit cards, consumer banking and wealth management. In business in 14 states, this is one of the poorly rated according to Pew. In fact, it has the lowest number of “good” policies than any of the others. It was also the only bank on this list, and one of just five banks overall, that did not allow relatively minor disputes to go through small claims court rather than mandatory arbitration.
It’s not entirely clear what, if anything, the Consumer Financial Protection Bureau will do about this revealing report. It’s tackling everything from credit card complaints to student loan complaints and make no mistake: CFPB is not the banker’s best friend; in fact, efforts continue in having it disassembled. That’s not likely to happen though. The watchdog group has certainly made its presence known, and for the banks in this list, it’s probably a good time for their respective management teams to step up to the plate.
What are your thoughts? What, if anything, should happen for those banks that refuse to adhere to the new regulations and financial laws? Share your thoughts with us.