Customers Get Even With Deceitful Banks


NEW YORK (MainStreet) — With increasing efforts by the fledgling Consumer Financial Protection Bureau and some legislators in Congress to shine the light on banks’ shady and sometimes deceitful practices, you can hardly blame some bank customers for wanting to get even.

Most often, this means managing accounts and being diligent about paying credit card bills on time so as not to incur any fees or penalties. But morality aside, some of those whom banks call “deadbeat” customers take measures a step further.

For example, banks that offer cash bonuses for signing up for a checking account are ripe for abuse. If a bank offers a $150 bonus to sign up for a checking account, some customers will sign on the dotted line, fulfill all the mandates issued by the bank to claim the $150 (like setting up direct deposit or meeting a minimum balance), then close the account down as soon as they pass the threshold. Six months later, when the bank repeats the deal, guess who’s first in line to sign up?

Tactics like this don’t violate any laws, and many will forgive people for taking advantage of the system much in the same way that banks can be deceitful without actually committing any crimes.

According to a recent study from the Pew Health Group, everyday bank transaction fees for getting money out of an ATM or for overdraft protection are rising, and customers are none the wiser.

“It is exceedingly difficult for the average consumer to find the basic information needed to either select a checking account or to responsibly manage the one they currently have,” notes Shelley A. Hearne, managing director of the Pew Health Group. “We are calling on policy makers to ensure that overdraft fees are reasonable and proportional. They must also address both the length and clarity of checking account disclosures, which are often 111 pages.”

Here’s a glimpse at the key points in the Pew study:

  • Customers cannot easily find important account terms and conditions. Accounts had a median of 111 pages of disclosure documents, including account agreements, addenda to account agreements, fee schedules and others.
  • Bank overdraft penalty fees are disproportionate to the size of the average overdraft amount.
  • Accountholders are not provided complete information about the costs of overdraft options. Institutions are not required to provide complete information about all the services available at the time a customer opts in, including lower-cost options. These plans have significantly different features and fees. For instance, Pew found the median overdraft penalty fee to be $35, compared to the median transfer fee of $10.
  • Banks reserve the right to re-order transactions in a manner that will maximize overdraft fees. Fully 80% of checking accounts contain binding mandatory arbitration agreements or fee-sharing provisions that on their face require the accountholder to pay the bank’s “loss, costs, and expenses” in a legal dispute regardless of the outcome to the case.

To counteract some of these practices, those “deadbeat” customers have to get creative as well.

One tactic is to abuse early withdrawal penalties on certificates of deposit. Most banks slap penalties on certificate of deposit customers who want to withdraw their money early (usually totaling around 60 days’ worth of interest). Early withdrawal penalties are cash cows for banks, but customers who park thousands of dollars in a CD for a decent interest rate that will quickly earn them more than the early withdrawal fee can then withdraw the money prematurely and still make significant cash.

Whether it’s paying your credit card bill on time or signing up for a cash rewards account only to close the account later, banks don’t like to talk about customers who game the system.

But what’s good for the goose is good for the gander – and some banks are finding that out the hard way.

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