Hidden bank fees are pushing the working poor out of mainstream banking and into riskier, more expensive alternatives to managing their personal finances. A new study released by the Pew Charitable Trusts provides a stark snapshot of how banks’ embrace of sneaky fees hurt the most vulnerable consumers. One advocate says this illustrates a broader crisis of transparency that leaves all consumers without vital information about the places they trust to keep their money. The Pew study interviewed 2,000 low-income families in Los Angeles once in 2009 and then again a year later, asking them both times about what services they used for personal banking. Over the course of the year, 8 percent of participants opened a bank account, but 13 percent closed theirs. Nearly a third of people said the reason they left was because of unexpected fees, while slightly more than a quarter said they left the banking system because of loss of a job or income.
“These fees are really a problem for consumers,” says Susan Weinstock, director of safe checking project at Pew Charitable Trusts.”Our response to this data finding is that we think there needs to be a disclosure box for checking accounts. We think this would provide an easy summary look at an account so you know what you’re getting into before you get into it,” she says.
Of course, such a box wouldn’t just aid the low-income families in the Pew study; it would be a big help to people thinking about changing banks in light of more and higher fees being levied by many large banks. “We think there would be a more competitive marketplace because people could shop around for a checking account in a way they can’t now,” Weinstock says.
The problem with bank fees goes beyond just the recent announcements by Bank of America and Citibank that have generated so much grassroots ire, though. As banks have grown and morphed from straightforward deposit and lending institutions to multifaceted entities doing everything from orchestrating IPOs to running stock-trading desks, checking accounts have become just another income stream.
Recent regulations have cracked down on some of the most onerous of “gotcha” fees like $38 overdrafts, but banks have responded by adding new fees for perks that used to be free, like account maintenance and receiving paper statements. “There’s no question that high bank fees and hidden fees are one part of the problem, but they’re only one of the problems,” says Ed Mierzwinski, consumer advocate at watchdog group US-PIRG.
A bigger problem, he says, is that the hidden fees are not transparent. The Pew Safe Checking Project found that the average amount of checking disclosures is 111 pages, and that information about fees can be sprinkled throughout paper brochures, websites and other forms customers don’t get until after they’ve actually signed up for the account. Accountholders today are more conscious of fees, but it can be hard for even a responsible consumer to get the information needed to make comparisons between banks.