Could Your Wish Actually Be Your Bank’s Command?

by John Kiernan on October 3, 2012

checking accountsEver think that those studies and recommendations you always see research firms coming out with don’t have much of an actual influence? Well, you’re wrong, and the way the Pew Charitable Trusts is changing how banks disclose checking account terms and conditions is a prime example of why.

Banks, as we all know too well, have long buried the true cost of their financial products in fine print.  However, it wasn’t until Pew conducted a study on the checking accounts offered by the nation’s 10 largest banks and found them hard to compare given that half boasted at least 97 pages of disclosures that any changes were made.

You see, part of this study included a sample one-page disclosure that the group recommended banks replace their mess of fine print with.  They listened.  Bank of America, Citi, Chase, and TD Bank are among the more than half a dozen major banks who have adopted at least a version of this sample thus far.

While the responsiveness of the banking industry to outside critique might surprise you, it’s important to remember that in this post-recession environment, consumers and regulators alike are placing tremendous emphasis on the transparency of financial companies.  It’s therefore often preferable for them to appease critics by proactively adopting suggested changes rather than holding their ground and maintaining the status quo until forced to do otherwise.

They’re also effectively buying goodwill with regulators and turning industry watchdogs into advocates.  You see, Pew will inevitably praise the banks that took its suggested changes to heart and will perhaps be more inclined to give them the benefit of the doubt in future dealings.  It’s only human nature.  Besides, bank executives often get overly focused on signing up as many customers as possible without considering the fact that consumers who are clear about what they’re getting into will likely be long-term customers who complain less and therefore use up fewer customer support resources.  More straightforward disclosures will therefore boost profits in the long run.

The real question, however, is not whether the move is good for business or PR, but rather whether it will actually make it easier to compare checking account offers and pick the best one for your needs.  After all, even the Federal Reserve’s sample credit card fee disclosure leaves much to be desired and thereby proves that it’s more important to follow a good example than simply an example from a good source.

As you can see, Pew’s sample disclosure box certainly does provide for the most important information relating to the makeup of a checking account to be clearly displayed.  It’s therefore easy for prospective customers to see what they’ll be paying for and when, what their options are in terms of overdraft policies, and how certain logistics will be handled.

The most important thing, however, is uniformity.  People have to be able to know where to look for information relating to a certain aspect of a checking account offer or else they will spend more time looking for it and trying to figure out how it meshes with another offer than actually making apples-to-apples comparisons and choosing the right product for their needs.  If every bank adopts Pew’s sample disclosure, then this won’t be an issue.  But so far even many of the banks that have done so have put their own spin on the disclosure.

Perhaps the most challenging part of all of this is the fact that checking account offers are often bundled with other financial products, such as savings accounts and mortgages.  A checking account could therefore look great, but you might end up overpaying for it via a below-average mortgage.  The best way to mitigate this risk is to consider each aspect of a suite of offers individually prior to deciding whether or not to opt for it.

Nevertheless, a couple of things are ultimately clear:  It’s good that banks are progressing toward easier-to-parse disclosures, but we still need regulatory intervention to force uniformity and transparency on the entire industry.

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