Report: Consumer Protection

Tricks and Traps

The Hidden Cost of Banking in Oregon
Released by: OSPIRG

As Oregonians continue to endure the worst economic crisis since the Great Depression, OSPIRG set out to discover what consumers are really paying to maintain basic banking services in Oregon, and what sorts of fees and financial institution policies have the biggest effect on consumers' bottom line.

OSPIRG staff and volunteers analyzed 64 checking accounts offered by ten banks and eight credit unions in Portland, Eugene and Ashland and found the following:

Consumers are subject to a wide array of fees that accompany so-called “free” or low cost checking accounts.

Banks routinely advertise “free” and low cost checking accounts with no or low monthly payments. However, the accounts surveyed come with a wide array of additional fees.  Specific findings about these fees include:

‘Overdraft protection’ fees continue to be a potential nightmare for consumers.

• Almost every bank and credit union we surveyed automatically enrolled customers in their ‘overdraft protection’ program. Some large banks recently announced changes to their overdraft protection programs, but most banks surveyed have not agreed to end this practice. 
• 44% of the institutions we surveyed, including 66% of banks, did not allow consumers to opt out of the programs.
• Banks and credit unions charged an average overdraft protection fee of $29.92. 
• An overdraft of $20 paid back in two weeks amounts to a loan with an Annual Percentage Rate of 3889%, more than 7 times higher than what was common in the payday lending industry before Oregon established effective regulations in that market.
• Many of the institutions surveyed manipulate their customers' checking accounts to artificially trigger an overdraft charge. The most common method used in our survey was to clear the largest transaction first, causing more transactions to overdraw the account.

Institutions surveyed continue to double-charge consumers for ATM withdrawals. The institutions surveyed charged their customers an average fee of $1.53 for using another bank’s ATM. This is a double charge, because most ATM owners add a surcharge to out of network users.
   
Institutions surveyed charge their customers an average of $9.79 to customers who, through no fault of their own, deposit someone else's bad check.   
   
Institutions surveyed charge their customers an average of $26.52 to stop payments. 

Disclosure of the true cost of a checking account is poor. 

Consumers should be able to go online or into a financial institution branch and receive clear, concise information outlining the basic costs, fees, and policies associated with mainstream banking products. Most financial institutions we surveyed did not meet this standard and a number of institutions may not even meet the requirements of the law.

• 89% of all institutions surveyed failed to provide written information on important bank policies when asked in person. 39% failed to provide the same information on their website.
• 30% of banks surveyed failed to provide an account fee schedule when asked in person or on the banks’ website – an apparent violation of the 1991 Truth in Savings Act.

Hidden fees drive up the cost of so-called “low cost” checking accounts.

A typical customer who incurs a modest number of the different fees outlined above could pay an average of $166.24 in fees every year simply to maintain a regular checking account. This ranged from an average of $132.95/year for the credit unions surveyed to an average of $184.24/year for the banks surveyed.  

Recommendations

For Congress
Immediately establish a Consumer Financial Protection Agency -- a full time cop on the beat with the authority and flexibility necessary protect consumers from financial market deception. 

For consumers
• Call on your Members of Congress to establish a strong Consumer Financial Protection Agency. 
• The squeaky wheel gets the grease (sometimes).  Many fees are negotiable on a case by case basis. 
• Switch to a community bank or credit union.  

Priority Action

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