June 16, 2011
Complexity Dogs Financial Consumers
There is a race between financial companies and their consumers, and the consumer is dead last.
It has become virtually impossible for regular folks to keep pace with Wall Street’s increasingly complex financial products or the confusing bells and whistles being attached to once-familiar products. Look no further than the “basic” checking account, which is no longer basic, according to a recent study by The Pew Charitable Trusts. And forget about deciphering “universal variable life insurance.”
Evidence of this complexity abounds in the personal finance section of The Wall Street Journal, which recently ran an article about the profusion of “draw-down” products to help retirees use their 401(k)s to lock in a steady stream of income. The newspaper also warned about the banking industry’s new push to sell “professional credit cards,” which aren’t subject to regulations that limit controversial billing practices.
Even with checking accounts, the devil is in the details. In “Hidden Risks: The Case for Safe and Transparent Checking Accounts,” Pew analyzed fees in 250 checking accounts – that’s how many were offered just by the nation’s 10 largest banking companies.
The key to calculating customers’ fees is the order in which banks post the checks and deposits coming in every day from customers. Nine of the institutions don’t tell customers the order, even though this can determine – and increase – the overdraft fees charged. In a lawsuit, Wells Fargo & Co.’s practice of posting checks and debit purchases by dollar amount racked up $88 in fees for one customer – four times more than he would’ve accumulated if they were posted chronologically, Pew said.
Pew found that while there are limits on the dollar amount of late fees that a credit card can charge, there are no fee limits on checking accounts. Who knew?
Each bank provided more than 100 pages of documents to explain how each account works. Yet they failed to post on their customer websites the overdraft-penalty and stop-payment fees or maximum fees a customer may be charged per day.
Some financial products offer no benefit whatsoever: Smart Money recently featured an article on the proliferation of websites offering coupons that are not worth the paper they’re printed on.