Pew Report Finds Military Checking Account Practices Need Improvement

On-base financial institutions succeed in some areas but fall short in others, leaving account holders vulnerable

Pew Report Finds Military Checking Account Practices Need Improvement

Washington—The Pew Charitable Trusts released its first evaluation of checking account practices at banks and credit unions on military bases, finding that some employ practices that provide transparency and protect consumers but that all of the institutions examined could do more. The report underscores the need for the Consumer Financial Protection Bureau (CFPB) to write new rules that make checking accounts safer and more transparent. 

“Safe financial products are essential for all consumers, but they are especially important for Americans serving in the military,” said Susan Weinstock, who directs Pew’s consumer banking research. “Service members face unique challenges associated with repeated deployment and frequent relocations, and it is essential that financial institutions implement policies to promote transparency and protect account holders from harmful or hidden practices. We urge the CFPB to take concrete steps to improve checking account safeguards for both military and civilian customers.” 

The new report, Checks and Balances, Stars and Stripes, expands to on-base banks and credit unions Pew’s analysis of the disclosure, overdraft, and dispute resolution practices at large U.S. banks, captured in the Checks and Balances report series. Pew evaluated checking accounts offered by 18 of the 31 Association of Military Banks of America (AMBA) on-installation member banks and 111 of the 134 Defense Credit Union Council (DCUC) on-installation member credit unions to determine how well the financial institutions’ practices align with Pew’s policy recommendations. 

In the area of disclosure, Pew found that 42 percent of banks and 17 percent of credit unions do not provide any disclosure information online, making it difficult for deployed service members to access critical information about the terms and conditions governing their accounts. Yet of those banks that provide account information online, almost three-quarters of banks offer a summary disclosure box and half of the banks offer boxes that meet Pew’s criteria for effective disclosure. 

Regarding overdraft policies, the vast majority of the banks and credit unions that Pew studied do not protect their customers by automatically declining transactions at an ATM or the point-of-sale that would overdraw an account. Pew found that the median overdraft fee was $35 for banks and $29 for credit unions; however, two-thirds of the banks do not charge an overdraft fee for a de minimus withdrawal or purchase, typically $5. 

For dispute resolution, Pew found that 65 percent of banks include mandatory arbitration clauses in their account agreement documents, limiting customers’ legal recourse by requiring arbitration in the event of a significant dispute. On the other hand only 6 percent of credit unions employ these clauses. 

Pew urges the Consumer Financial Protection Bureau to require all financial institutions to: 

  • Summarize key information about terms and fees in a concise, uniform format.
  • Provide account holders with clear, comprehensive terms and pricing information for all available overdraft options.
  • Make overdraft penalty fees reasonable and proportional to the financial institution’s costs in providing the loan.
  • Post deposits and withdrawals in a fully disclosed, objective, and neutral manner that does not maximize overdraft fees.
  • Prohibit pre-dispute mandatory binding arbitration clauses in checking account agreements, which prevent account holders from accessing courts to challenge unfair and deceptive practices or other legal violations.

To analyze these accounts, Pew attempted to collect the account agreements from each of the listed AMBA- and DCUC-member financial institutions, and was able to do so for banks and credit unions operating on 71 percent of all domestic Department of Defense installations. 

Note: The original version of this news release, published on October 28, included an incorrect statement. We take accuracy very seriously. This revised release was issued on November 7, as was the revised version of the report. The revised release deleted the following statement from the original version: “Further, more than half of banks and three-quarters of credit unions reorder at least some transactions in a manner that can create more overdrafts.”


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