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Bank Fees Rise, Disclosure Sinks

Even trained investigators have trouble getting accurate fee info

By Martin H. Bosworth
ConsumerAffairs.com

March 4, 2008

Odds are you don't know, and despite being required to do so by law, many banks fail to disclose their fee structures and charges to customers -- to the point where even teams of trained undercover investigators often could not obtain information about a bank account's fees or hidden penalties.

That's the conclusion of a new report issued by the Government Accountability Office (GAO), the investigative agency arm of Congress.

The GAO sent investigators to 185 branches of 154 depository institutions, often posing as customers, in order to review banks' compliance with rules governing fee disclosures under the Truth in Savings Act (TISA). The GAO investigation found that while certain overdraft and penalty fees have increased as much as 10 percent since 2000, many banks do not disclose their fees to customers in print materials or on bank Web sites.

"We were unable to obtain, upon request, a comprehensive list of all checking and savings account fees at 40 of the branches (22 percent) that we visited," the agency said in its report. "Similarly, we were unable to obtain the account terms and conditions, including information on when deposited funds became available and how overdrafts were handled, for checking and savings accounts at 61 of the branches (33 percent)."

Consumers harmed

The GAO said that lack of clear disclosure of fees harms consumers' ability to shop effectively for the right banking solution.

"Consumers may consider convenience or other factors besides costs when shopping for checking or savings accounts, but this inability to obtain information about fees and the conditions under which fees are assessed upon request prior to opening a checking and savings account hinders their ability to make meaningful comparisons among institutions," the agency said.

Among the report's findings:

• Average non-sufficient funds (NSF) penalties and overdraft fees have increased by about 11 percent, stop payment order fees by 17 percent, and return deposited item fees by 49 percent since 2000.

• Large banks often charged a "tiered" pricing structure for fees, levying one penalty for the first three overdrafts in a year, then a higher penalty for the next three, and a higher penalty still for seven or more overdrafts.

• ATM fees and checking account "maintenance" fees actually declined slightly between 2000 and 2006, while the number of banks offering free no-fee checking accounts rose from 30 percent in 2001 to 60 percent in 2006.

• Large banking institutions charged an average of $4 to $5 more for fees and overdrafts than small banks and credit unions.

• Fee-based income for banks and credit unions alike increased over the six-year-period, from 24 to 27 percent for banks and from 11 to 14 percent for credit unions. The GAO credited the increase in fee-based income to the difficulties from earning profit as the Federal Funds rate was slashed repeatedly over the past six years.

More regulation needed

The agency recommended that the regulatory bodies tasked to oversee financial institutions, including the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve, and the Office of the Comptroller of the Currency (OCC), include assessments of the need for disclosure in their regular oversight of banks and lenders, and that consumers regularly receive fee and penalty disclosures prior to opening an account.

The report was commissioned by Rep. Carolyn Maloney (D-NY) in her role as Chair of the House Subcommittee on Financial Institutions and Consumer Credit. Maloney urged federal regulators to adopt the GAO's recommendations, enabling greater transparency and available information for consumers.

"It's troubling that many consumers may find it difficult to obtain account terms and information about fees before opening an account," said Maloney. "You don't have to buy a car before you find out how many miles per gallon it gets, and you don't have to buy a house before you find out what your taxes will be. Why should consumers be forced to walk blindly into the terms and conditions of a bank account?"

Maloney's crusade for fairness from the financial industry recently led to her sponsoring legislation that would prohibit abusive credit card fees and unexplained hikes in interest rates.

The GAO's previous investigations of irregularities in the banking and financial industries have included a 2006 investigation into cryptic credit card agreement disclosures and hidden card fees, which led to several Senate hearings lambasting the credit card industry for writing disclosures at what Senator Carl Levin (D-MI) called a "27th-grade level."

Another 2006 report from the GAO found that the credit card industry had the technology and resources to streamline credit card statements, despite claims that it would be too costly to do so.

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