Not knowing enough about your checking account could hurt you in the long run

The relationships that consumers have with their respective banks could be far worse than what it seemed a couple of weeks ago. Pew Health Group has recently finished a study which throws light on the relationships that consumers have with their banks with regard to their checking accounts. It goes to show that consumers have very little chance to understand the terms and conditions that is most often quite heavily favorable to the banks.

The nation’s 10 largest banks were part of the study conducted by Pew and it was found that the disclosures on their checking accounts (terms and conditions) ran up to 111 pages and had many conditions that were not consumer friendly.

The group also stated that account holders could be exposed to a lot of hidden risks due to the failure to provide disclosures that were clear and easy to comprehend.

There were more than 250 types of checking accounts that were being offered online by these 10 major banks in the US and these were being examined by Pew.

The findings of the Pew studies were as follows:

• It was found that consumers were not given full disclosure about how much the overdrafts would cost or the options that are there.
• Banks have the right to change the order while processing transactions and this gives them a better chance to earn overdraft revenue.
• At least 8 out of 10 checking accounts make it binding on customers to absorb the bank’s costs in case of a dispute regardless of who actually wins the dispute.

Pew also analyzed how banks had actually pushed up their profits by way of overdraft fees, by increasing the fees and it amounted to $38.5 billion in 2011. This was over $18.6 billion since 2000. The overdraft fees were not proportional to the actual amount of the overdraft. The median penalty on an overdraft has gone up from $27 in 2007 to $35 now.

According to Pew, if the overdraft had to be regarded as a short-term loan that was payable within a week, then the APR would go over 5,000% – this seems way beyond all logic.

Shelley A. Hearne, MD, Pew Health Group stated that it becomes increasingly difficult for consumers to decipher what is in the disclosure and hence are unable to manage their accounts in a responsible manner. They are also unable to choose the right checking account.