All You Can Pay

Author:Bernasek, Anna & Mongan, D.T.
Language: eng
Format: epub
Publisher: Nation Books
Published: 2015-05-25T16:00:00+00:00

Checking on Checking

Look at all the ways companies are already exploiting trust through the proliferation of fine print. Take something many people think they’re pretty familiar with, the basic checking account. Today, there are about 100 million checking accounts in the United States. Without a checking account, it’s difficult and often costly to do many simple transactions. In the past, checking accounts were fairly standard, simple products. Today they are a maze of complexity with rules and fees varying widely. So widely, in fact, that the typical annual cost of a basic account can range from zero to more than $700, according to a 2014 survey of checking-account costs by WalletHub, a consumer-finance information and social-networking website. “For such a ubiquitous financial product, one would expect consistency in disclosures and fee standardization,” WalletHub wrote in a research report. “Unfortunately, the opposite is true. Consumers face disclosure practices and fee arrangements that resemble the Wild West.”

Making simple products more complex is just one way that companies can extract more of the consumer surplus. Complexity hides the true price and nature of a product or service. WalletHub found thirty different types of fees associated with checking accounts. That’s not a good scenario for customers who want to understand what the real price is and comparison shop. “The sheer number of different fees associated with checking accounts prevents effective product comparison and decreases the likelihood that consumers will find the best checking accounts for their needs,” WalletHub wrote in its report on the transparency of checking accounts. To even attempt a comparison, WalletHub created five different consumer profiles in order to measure the different costs across twenty-five major consumer banks in the United States. For one profile, the “cash-strapped consumer,” WalletHub found that the annual cost of a checking account varied from as low as $2.83 for Capital One 360 Checking to as high as $735.00 for M&T Free Checking (note the “Free Checking”!). WalletHub defined cash-strapped as a customer who overdraws twelve times a year, uses an out-of-network ATM once a month, and averages an end-of-the-month balance of $50. The big difference between the two accounts was the fee charged on overdrafts. Instead of charging a fixed dollar amount in overdraft fees, which is typical in the industry, Capital One charges an 11.25 percent annual percentage rate on the amount a customer overcharges. Another difference is that Capital One didn’t charge fees on out-of-network ATMs. The fact that it takes an analyst to compare the cost of checking accounts is revealing in itself. How does an ordinary consumer have a hope of figuring it out? Wasn’t more information supposed to be better for us as consumers? But it’s not turning out that way.

With checking accounts, the general rule is: The less money held in a checking account, the more the account holder pays in bank fees. The biggest fees fall on consumers who occasionally overdraw their accounts, a surprisingly common practice among less well-off customers. The average annual cost of a checking account for a customer who overdraws an account once a month was $499.

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