In its latest report evaluating the checking account practices of the nation’s largest banks, the Pew Charitable Trusts continues to press the CFPB to write new overdraft and other rules for checking accounts.
Pew’s new report, the third report in a series, examines the practices of 45 of the nation’s 50 largest banks by deposit volume and assesses trends among the 32 banks that have been reviewed in all three studies. (In the prior reports, which were released in 2013 and 2014, Pew evaluated, respectively, 36 and 44 of the 50 largest banks.)
Despite finding significant improvement in disclosure practices (with more banks using Pew’s “best practice summary disclosure box”), Pew states that “policymakers cannot simply wait for all financial institutions to adopt comprehensive practices which ensure that checking accounts are safe and transparent.” Pew wants the CFPB to write new rules “that require financial institutions to clearly disclose important account terms and conditions.”
The report shows an increase in the number of banks among the 32 banks reviewed in all three studies that do not have a binding arbitration provision in their checking account agreements. Nevertheless, Pew renews its recommendation that such provisions be eliminated from checking account agreements.
Pew’s finding that fewer banks had arbitration provisions in their checking account agreements is consistent with data in the CFPB’s March 2015 Study of consumer arbitration showing that only 7.7% of banks with 44% of insured deposits use arbitration clauses. This means that 92.3 of banks with 56% of deposits do not use arbitration. That data strongly undercuts Pew’s renewed recommendation that arbitration clauses be eliminated from deposit account agreements, since there is obviously abundant competition in the marketplace to accommodate checking account customers who prefer not to have an arbitration agreement. The CFPB’s data also undercuts the agency’s own conclusion that arbitration is a barrier to class actions. In addition, Pew’s recommendation is actually detrimental to consumers, since the data in CFPB’s Study conclusively demonstrates that arbitration is faster, cheaper and more beneficial for consumers than litigation, including class action litigation.
As it has done in previous reports, Pew seeks restrictions on overdraft fees without making any findings about the reasonableness of the amount of the overdraft fees charged by the banks it evaluated. Pew wants the CFPB to require overdraft fees to be reasonable and proportional to a financial institution’s costs in providing an “overdraft loan.” It also continues to push the CFPB for a rule that requires banks to post deposits and withdrawals “in a fully disclosed, objective, and neutral manner, such as in chronological order, which does not maximize overdraft fees.”
Although the CFPB has not yet made overdraft rulemaking a front burner issue, continuing pressure from Pew and other consumer groups for the CFPB to move forward with rulemaking could cause the CFPB to accelerate its rulemaking timetable.