Ed's Blog

PIRG "Big Banks, Bigger Fees" reports have documented the many so-called "switching cost" problems consumers face when trying to move their money to a new bank (or credit union). For example, both PIRG and the U.S. GAO have used secret shoppers to document that one-quarter of bank branches fail to comply with fee disclosure laws, making it hard to compare prices and shop around.

As we document in our 2011 PIRG Big Banks, Bigger Fees (full pdf) report (by the way, we're finishing up the 2012 report):

Banks count on the lack of easy-to-find fee information and the difficulty of shopping around as a way to keep fees high. In addition, the lack of regulatory enforcement of the disclosure laws is exacerbated by the high “switching costs” involved in getting a new bank account (information-gathering time, submitting to credit checks, changing account numbers on automated transactions, etc.), allows them to raise fees and helps them hold on to a captive customer base.

Bank account number portability, which has worked well for phone company switching, where you now generally get to keep your telephone number (FCC site), could be a part of the solution to high switching costs that keep consumers trapped at the big bank. It is especially important today because so many consumers get paid through electronic deposit transfers and many also pay many of their bills through automated bill payments linked to their bank account numbers.

A new report, "Trapped at the Bank," by Consumers Union, the advocacy arm of Consumer Reports Magazine, finds that "The feasibility of bank account number portability should be examined."

Phone number portability has worked  It make sense to try bank account number portability. Among the other problems discussed  in the CU/CR report are the following:

• There should be no punitive fees to close an account.
• Banks should not reopen accounts after consumers close them.

As CU/CR reports, these old undead zombie accounts keep running up fees, but you may not know about it. As the report also points out, another barrier for consumers looking to move their money is having enough cash for cash flow purposes. Many of these account number changes require paperwork and can take up to 6 weeks or more to transact. Don't foregt that you need to have enough money to keep in both accounts -- the old and the new -- in case transfers keep coming from one or start in the other at unpredictable times. Six weeks or more means at least two monthly cycles. You make a mistake, you could end up bouncing some payments, or worse, getting a dreaded Chexsystems blacklist credit report for "bounced check activity." So, cash flow is yet another switching cost.

Nevertheless, anger at the big banks and their bad practices has encouraged more consumers to move their money to community banks or credit unions. U.S. PIRG has encouraged the CFPB -- the first federal financial agency with just one job, protecting consumers -- to take a number of steps, including enforcing the Truth In Savings fee disclosure law and requiring banks to post fees on the Internet in a "machine-readable" format, so consumer groups and others can easily download the fees and create bank fee comparison shopping guides.

And the CFPB should also look at the feasibility of requiring account number portability. I spoke with one of the staff about this last week and they are aware of the proposal. Need help avoiding high bank fees or moving your money? Check out PIRG's Bank Fee Tips.