The Pew Charitable Trusts has released a report on the safety and transparency of checking accounts. The study questions whether banks are sufficiently engaged in what Pew deems "best practices" and concludes that the Consumer Financial Protection Bureau should write new rules to ensure that all checking accounts adopt certain best practices. We believe there are a number of shortcomings in the study's methodology, however.

Pew evaluated checking accounts by reviewing the implementation of three best practices, which it defines as:

  • Providing checking account holders with clear and concise disclosure about costs and terms
  • Reducing the incidence of overdrafts and eliminating practices that maximize overdraft fees
  • Offering consumers a meaningful choice to resolve a problem with their bank rather than including mandatory binding arbitration clauses in checking account agreements

Pew surveyed checking accounts offered by 36 of the 50 largest U.S. banks by deposit volume. Among its key findings is that 97 percent of the banks evaluated had at least one best practice, but none had all three.

It is important to keep several caveats in mind when assessing the study's findings. First, the study's best practice regarding clear and concise disclosure was heavily based on banks adopting a uniform standard for disclosure to allow for comparison shopping. Therefore, the study goes beyond evaluating the clarity of bank disclosures and instead focuses on how similar the banks' disclosures are. Further, a bank could achieve a best-practice rating only if it had adopted "Pew's Model Disclosure Box for Checking Accounts" or, at minimum, a disclosure box that closely resembled it.

A second caveat is that Pew's best practice regarding the need to reduce the incidence of overdrafts was not based on data compiled from a random sampling of checking account consumers. Instead, Pew referenced a May 2012 report, "Overdraft America: Confusion and Concerns About Bank Practices." This report surveyed only consumers who had overdrawn their checking accounts in the past year. As a result, Pew relied on an extremely narrow sampling to support its claim that there is both a consumer misunderstanding and unhappiness with bank overdraft fees and policies.

A third caveat addresses the study's conclusions regarding mandatory binding arbitration clauses. The so-called best practices detailed in this section were predicated on a 2012 Pew report, "Banking on Arbitration: Big Banks, Consumers, and Checking Account Dispute Resolution." That report's finding of consumer dissatisfaction with arbitration was not based on a survey of consumers who had participated in the arbitration process. Instead, Pew identified consumers who were simply checking account holders.

The data compiled from this overly broad sampling is inconsistent with the findings of previous studies, which showed that consumers who actually go through arbitration prefer it to the courts as a way of resolving disputes with companies. See our 2012 e-alert on checking account arbitration. In addition, the study focuses on only a few arbitration agreement terms and ignores the numerous other consumer-friendly terms contained in most deposit account arbitration agreements in use today.

Ballard Spahr's Consumer Financial Services Group pioneered the use of pre-dispute arbitration provisions in consumer financial services agreements. It is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws, and its skill in litigation defense and avoidance.

For more information, please contact Practice Leader Alan S. Kaplinsky, 215.864.8544 or kaplinsky@ballardspahr.com, or Mark J. Levin, 215.864.8235 or levinmj@ballardspahr.com.


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