Bank Fees:

Federal Banking Regulators Could Better Ensure That Consumers Have Required Disclosure Documents Prior to Opening Checking or Savings Accounts

GAO-08-281: Published: Jan 31, 2008. Publicly Released: Mar 3, 2008.

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In 2006, consumers paid over $36 billion in fees associated with checking and savings accounts, raising questions about consumers' awareness of their accounts' terms and conditions. GAO was asked to review (1) trends in the types and amounts of checking and deposit account fees since 2000, (2) how federal banking regulators address such fees in their oversight of depository institutions, and (3) the extent that consumers are able to obtain account terms and conditions and disclosures of fees upon request prior to opening an account. GAO analyzed fee data from private data vendors, publicly available financial data, and information from federal regulators; reviewed federal laws and regulations; and used direct observation techniques at depository institutions nationwide.

Data from private vendors indicate that average fees for insufficient funds, overdrafts, returns of deposited items, and stop payment orders have risen by 10 percent or more since 2000, while others, such as monthly account maintenance fees, have declined. During this period, the portion of depository institutions income derived from noninterest sources--including fees on savings and checking accounts--varied but increased overall from 24 percent to 27 percent. Changes in both consumer behavior, such as making more payments electronically, and practices of depository institutions are likely influencing trends in fees, but their exact effects are unknown. Federal banking regulators address fees associated with checking and savings accounts primarily by examining depository institutions' compliance with requirements, under the Truth in Savings Act (TISA) and its implementing regulations, to disclose fee information so that consumers can compare institutions. They also review customer complaints but do not assess whether fees are reasonable. The regulators received relatively fewer consumer complaints about fees and related disclosures--less than 5 percent of all complaints from 2002 to 2006--than about other bank products. During the same period, they cited 1,674 violations of fee-related disclosure regulations--about 335 annually among the 17,000 institutions they oversee. GAO's visits to 185 branches of 154 depository institutions suggest that, despite the disclosure requirements, consumers may find it difficult to obtain information about checking and savings account fees. GAO staff posing as customers were unable to obtain detailed fee information and account terms and conditions at over one-fifth of visited branches and also could not find this information on many institutions' Web sites. Federal regulators examine institutions' written policies, procedures, and documents but do not determine whether consumers actually receive disclosure documents. While consumers may consider factors besides costs when shopping for accounts, an inability to obtain information about terms, conditions, and fees hinders their ability to compare institutions.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Working with the other members of the Federal Financial Institutions Examination Council (FFIEC), OCC and the regulators completed revisions to the examination procedures for Regulation DD, which implements the Truth in Savings Act. OCC issued revised examination procedures based upon the FFIEC revisions on November 2008 (see Comptrollers Handbook: Depository Services). The revised examination procedures specifically state; "A depository institution must provide full account disclosures, including complete fee schedules, to a consumer upon request. This requirement pertains to all consumer requests, whether or not the consumer is an existing customer or a prospective customer." The handbook notes that institutions are required to disclose the amount of any fee that may be imposed in connection with the account (or an explanation of how the fee will be determined) and the conditions under which the fee may be imposed. To determine the bank's compliance with the Truth in Savings Act, OCC's examination procedures state that, among other things, the examiner is to "Determine that account disclosure information is provided to new or potential deposit account customers within the appropriate time frames."

    Recommendation: To help ensure that consumers can make meaningful comparisons between depository institutions--the Chairman, Federal Deposit Insurance Corporation; Chairman, Board of Governors of the Federal Reserve System; Chairman, National Credit Union Administration; Comptroller of the Currency, Office of the Comptroller of the Currency; and Director, Office of Thrift Supervision should assess the extent to which consumers receive specific disclosure documents on fees and account terms and conditions associated with demand and deposit accounts prior to opening an account, and incorporate steps as needed into their oversight of institutions' compliance with TISA to assure that disclosures continue to be made available.

    Agency Affected: Department of the Treasury: Office of the Comptroller of the Currency

  2. Status: Closed - Implemented

    Comments: On October 31, 2008, FDIC issued a memorandum to its regional directors that stated: "When examining for compliance with Regulation DD and Regulation E, examiners should carefully evaluate not only an institution's written policies, procedures, and disclosure information, but also how readily disclosure information is available to the public. Examiners also should review the results of any internal or external audit of this information, especially as performed during branch visits, and the regularity with which these disclosures are reviewed by management." The memorandum stated that its provisions became effective immediately. The regional directors were instructed to distribute the memorandum to all compliance staff engaged in the examination or examination support process.

    Recommendation: To help ensure that consumers can make meaningful comparisons between depository institutions--the Chairman, Federal Deposit Insurance Corporation; Chairman, Board of Governors of the Federal Reserve System; Chairman, National Credit Union Administration; Comptroller of the Currency, Office of the Comptroller of the Currency; and Director, Office of Thrift Supervision should assess the extent to which consumers receive specific disclosure documents on fees and account terms and conditions associated with demand and deposit accounts prior to opening an account, and incorporate steps as needed into their oversight of institutions' compliance with TISA to assure that disclosures continue to be made available.

    Agency Affected: Federal Deposit Insurance Corporation

  3. Status: Closed - Implemented

    Comments: On July 28, 2009, the Federal Reserve Board (FRB) issued a letter to each of the Federal Reserve Banks notifying them of updated interagency examination procedures for Regulation DD (Truth in Savings) that incorporated changes made in response to GAO's recommendation. The Regulation DD examination procedures were updated to emphasize the existing requirement to provide full account disclosure (fees, terms, conditions, etc.) to a consumer upon request, whether or not the consumer is an existing or prospective customer. The revisions to the examination procedures also focus on the need for examiners to make sure that supervised institutions train appropriate employees on the disclosure requirements of Regulation DD. FRB noted that the Federal Reserve Banks were asked to distribute a copy of the July 28, 2008, letter and the accompanying revised examination procedures to banking organizations supervised by the Federal Reserve in their districts, as well as to its supervisory and examination staff.

    Recommendation: To help ensure that consumers can make meaningful comparisons between depository institutions--the Chairman, Federal Deposit Insurance Corporation; Chairman, Board of Governors of the Federal Reserve System; Chairman, National Credit Union Administration; Comptroller of the Currency, Office of the Comptroller of the Currency; and Director, Office of Thrift Supervision should assess the extent to which consumers receive specific disclosure documents on fees and account terms and conditions associated with demand and deposit accounts prior to opening an account, and incorporate steps as needed into their oversight of institutions' compliance with TISA to assure that disclosures continue to be made available.

    Agency Affected: Federal Reserve System

  4. Status: Closed - Implemented

    Comments: NCUA stated that in response to GAO's recommendation, the Federal Financial Institutions Examination Council Task Force (FFIEC) on Compliance revised its Regulation DD-Truth in Savings Act (TISA)--examination procedures in June 2008. An updated version of NCUA's TISA examination guidance that reflected the FFIEC revised procedures was released July 2009. Additionally, NCUA stated it released a Regulatory Alert to credit unions, in August 2010. NCUA revised its Rules and Regulations Part 707, TISA, consistent with the requirements of Regulation DD, 12 CFR 230, including changes effective January 1, 2010, concerning disclosures of aggregate overdraft and returned fee items. After updating the regulation, NCUA likewise updated the applicable questionnaire. According to NCUA, it has updated the TISA questionnaire. For example, NCUA provided an updated TISA questionnaire used in all examination procedures starting after June 30, 2012 and confirmed that examiners are using the new procedures and questionnaire, as of June 30, 2012.

    Recommendation: To help ensure that consumers can make meaningful comparisons between depository institutions--the Chairman, Federal Deposit Insurance Corporation; Chairman, Board of Governors of the Federal Reserve System; Chairman, National Credit Union Administration; Comptroller of the Currency, Office of the Comptroller of the Currency; and Director, Office of Thrift Supervision should assess the extent to which consumers receive specific disclosure documents on fees and account terms and conditions associated with demand and deposit accounts prior to opening an account, and incorporate steps as needed into their oversight of institutions' compliance with TISA to assure that disclosures continue to be made available.

    Agency Affected: National Credit Union Administration

  5. Status: Closed - Implemented

    Comments: On April 2, 2009, the Office of Thrift Supervision (OTS) issued a regulatory bulletin to its examination staff transmitting revised examination handbook section dealing with assessing regulated institution's compliance with the Truth in Savings Act. The bulletin specifically stated that the changes made to its examination procedures include "Incorporation of steps into the oversight of institutions? compliance with TISA to ensure that consumers receive appropriate disclosures for fees and account terms associated with deposit ac-counts. This change responds to recommendation by the Government Accountability Office (GAO) to the federal financial regulatory agencies." The bulletin noted that under the revised examination procedures that regulated institutions should ensure that consumers receive appropriate disclosures for fees and account terms and conditions associated with deposit accounts prior to opening an account regardless of whether they are existing or prospective customers. The bulletin further noted that the examination procedures were developed on an interagency basis.

    Recommendation: To help ensure that consumers can make meaningful comparisons between depository institutions--the Chairman, Federal Deposit Insurance Corporation; Chairman, Board of Governors of the Federal Reserve System; Chairman, National Credit Union Administration; Comptroller of the Currency, Office of the Comptroller of the Currency; and Director, Office of Thrift Supervision should assess the extent to which consumers receive specific disclosure documents on fees and account terms and conditions associated with demand and deposit accounts prior to opening an account, and incorporate steps as needed into their oversight of institutions' compliance with TISA to assure that disclosures continue to be made available.

    Agency Affected: Department of the Treasury: Office of Thrift Supervision

 

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