Hidden Risks: The Case for Safe and Transparent Checking Accounts

Apr 27, 2011

Checking accounts play a vital role in the American economy. They are the most basic and necessary financial product for Americans and often provide consumers entry into the financial mainstream. Nine in 10 adults have checking accounts, representing a significantly larger proportion of the population than those holding mortgages or credit cards. As vital as this product is for American families, new analysis from the Pew Health Group’s Safe Checking in the Electronic Age Project show that many checking accounts contain hidden risks that can potentially harm accountholders.

In October 2010, Pew began a study of checking account terms and conditions to examine both the state of the marketplace and the effect of current regulations covering checking accounts. This research analyzed more than 250 types of checking accounts offered online by the ten largest banks in the United States, which hold nearly 60 percent of all deposit volume nationwide. From this analysis, Pew identified patterns that impose unnecessary and potentially dangerous risks on consumers.

Pew’s findings, explained in greater detail within the report, “Hidden Risks: The Case for Safe and Transparent Checking Accounts,” are as follows:

  • Banks do not provide important policies and fee information in a concise and easy-to-understand format that allows customers to compare account terms and conditions among banks. The median length of checking account disclosures is 111 pages.
  • Banks reserve the right to re-order transactions in a manner that will maximize overdraft fees.
  • Accountholders are not provided full information about the respective costs of overdraft options when considering opting-in to overdraft coverage.
  • Bank overdraft penalty fees are disproportionate to the size of the median overdraft amount.
  • More than 80 percent of accounts examined contain either binding mandatory arbitration agreements or fee-sharing provisions that require the accountholder to pay the bank’s “loss, costs, and expenses” in a legal dispute regardless of the outcome to the case.

Hidden Risks offers a number of policy recommendations to make checking accounts safer and more transparent for American consumers.

Click here to see a model disclosure form for checking accounts, based on the research in "Hidden Risks."

Also, click here to see a graphic illustrating checking account risks at a glance.

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