Another new disclosure? Checking account form proposed

First, there was the new mortgage disclosure form. Next came the student loan “shopping form.”

First, there was the new mortgage disclosure form. Next came the student loan “shopping form.”

Now, watch for the checking account disclosure form.

If consumer groups and two U.S. senators have their way, community banks and other financial institutions will have to provide new checking account customers with a detailed form that would:

  • Require information on important checking account terms to be disclosed in a one-page “Consumer Choice Box”;
  • Require complete disclosure of all overdraft options;
  • Require reasonable and proportional overdraft fees;
  • Require the posting of deposits and withdrawals in a neutral manner; and
  • Examine the prevalence of dispute resolution clauses in checking account agreements and the existence of fee shifting provisions that require the accountholder to pay at least a portion of the bank’s costs when a dispute occurs.

The bulleted list comes directly from a letter to the Consumer Financial Protection Bureau from the Pew Charitable Trusts, Consumer Action, Consumers Union, NAACP and other organizations.

Now, Sen. Richard Durbin (D-Ill.) and Sen. Jack Reed (D-R.I.) have joined the call for a new checking account disclosure form.

“We write to urge the Consumer Financial Protection Bureau to move swiftly to require financial institutions to post on their websites a standardized, concise and consumer-friendly disclosure form that lists the fees and key terms associated with checking accounts,” Sens. Durbin and Reed wrote in a Nov. 3 letter to the CFPB.

“While the letter from the two U.S. senators could lead one to conclude that no disclosures are being provided by the industry and that the industry does not support simplification, this is not the case. Banks do provide fee information pursuant to the Truth in Savings Act. Further, the banking industry has, since the 1990s, advocated for shorter and easier disclosures for financial products,” said Karen Grandstrand, chair of the Bank & Finance Group at Fredrikson & Byron, P.A.

Appearing before the Senate Subcommittee on Financial Institutions and Consumer Protections on Oct. 4, Susan Weinstock of the Pew Charitable Trusts testified that checking accounts today come with a median of 111 pages of disclosure documents, “consisting of account agreements, addenda to account agreements, fee schedules, and pages on the bank’s website.” She added:

The banks often used different names for the same fee or service; put the information in different documents, different media (Web or hard copy), or different locations in a document; and did not summarize or collect key information anywhere. Many of these documents are not user-friendly, with much of the text densely printed, difficult to decipher, and highly technical and legalistic.”

Bank customers could be charged as many as 49 different fees on a checking account, according to the Pew Charitable Trusts’ Safe Checking in the Electronic Age project, which studied 250 checking accounts “offered by the 10 largest banks in the United States,” Weinstock said.

The Pew Charitable Trusts went as far as to draft a model checking account disclosure form and test it with consumers in Philadelphia, Minneapolis and Los Angeles. The organization also commissioned research that found:

  • 78 percent of accountholders find that requiring banks to provide a one-page summary of information about checking accounts’ terms, conditions, and fees would be a positive change, while only 4 percent say this would be a negative change.
  • 86 percent of Democrats, 74 percent of those who identify as independents, 73 percent of Republicans, and 69 percent of those who identify with the Tea Party say this would be a positive change.

“As pointed out by the Pew report, consumers are not reading the information provided by the banks. Thus, Pew would simply like the disclosures to be on a one-page, uniform and simple form. This simplified approach would be good for consumers and banks. It will not, however, be easy to come up with a one-page simple form given existing statutes, regulations and class action lawsuits that have led to what we have today in terms of disclosure statements,” Grandstrand said.

Going forward, the Bureau needs to work with the industry to create an appropriate disclosure form, she said.

Fredrikson & Byron Law