So Much for Simplified Checking Account Disclosures

For some time now I've been mulling over a column on the unique checking and saving account products to hit the market and how game-changing they may or may not be. Unfortunately, while reviewing their terms and conditions, I can't get past one predominant question: Why, oh, why are these online advertisements and associated disclosure forms so complicated? 

Take, for example, Santander's extra20 Checking Account, which rewards accountholders $10 each month they meet direct-deposit minimums and another $10 if they pay two or more bills online. The product's landing page features three different tabs users can toggle between and nine footnotes – 12, actually, if you count the subset included in the "Checking Comparison" section.

Similarly, the details tab on PNC Financial's rather intricate Virtual Wallet website features eight footnotes* (three of which you need to click little plus signs to read.) BBVA Compass uses five footnotes in advertising its ClearConnect checking account and Barclays uses four on its Dream savings account landing page.

In most instances, the fine print links or otherwise directs prospective accountholders to much longer, comprehensive FAQ sheets, terms and conditions or full personal deposit account agreements.

Complex account disclosures and agreements are part of a long, ignoble industry tradition. By 2012, checking disclosures had grown so obscure that the Pew Charitable Trusts launched an initiative to get banks to summarize their checking account policies in a simplified disclosure form.

Twenty-six financial services providers, including Ally Financial which joined the fray in December, garnered some good press by adopting versions of Pew's template. These simplified disclosures are a marked improvement over the longer ones, but I'm not sure transparency netted a complete victory.

For starters, most of the forms (aggregated on Pew's website) span beyond the single page that the organization initially recommended banks adopt. Town and Country Bank's disclosure, which describes several checking account and saving account options, for example, is ten pages long.

Other banks, including JPMorgan Chase, Fifth Third, and Wells Fargo, have gone so far as to footnote their "simplified" forms. Wells' decision to do so is particularly curious, for several reasons, not least of all that there are only two footnotes on the three-page disclosure. The first footnote …

$50 minimum opening deposit for Wells Fargo store and business banking locations. For Wells Fargo Phone Bank ^SM or Wells Fargo Online ^® Banking the minimum opening deposit is $25.

… could have easily appeared in the monthly service fee box. (There is, after all, ample white space.) And the second …

Our overdraft fee may apply whether the overdraft is by check, ATM withdrawal, debit card, electronic transaction or other means. The payment of transactions into overdraft is discretionary and the bank reserves the right not to pay. For example, the bank typically does not pay overdrafts if your account is not in good standing or you have had excessive overdrafts. You must immediately bring your account to a positive balance.

… seems just as pertinent as all the information that is included in the disclosure box itself. (Of course, my quibble with overdraft disclosures, generally, is that they are inconsistent from bank to bank.)

Moreover, almost all of these firms make it clear that their simplified disclosures in no way, shape or form fully outline the complete terms and conditions of the account. (See Bank of America, BB&T, Citi and SunTrust.)

So, while the forms are a great tool for comparison shopping (admittedly, Pew's objective), they don't spare an accountholder from having to read 21 to 153 pages of legalese upon opening an account.

Financial institutions have argued that a certain amount of this legalese is necessary in order to comply with regulations and avoid frivolous lawsuits. Given the length of certain reforms, there's no doubt they contribute to complex deposit agreements. But signs point to banks worsening the problem.

The new checking and saving account products mentioned above are interesting in that they use positive reinforcement (in the form of rewards) or negative reinforcement (in the form of fees) to get customers to adopt certain beneficial behaviors. One of the ways to waive the monthly checking account fee on PNC's Virtual Wallet, for instance, is to only use ATMs or electronic methods to make deposits and withdrawals, which makes sense in light of the bank's recent push to downsize its branch network. And BBVA's ClearConnect Account will help migrate customers online and wean them off costly paper statements.

These tactics may ultimately prove worthwhile, but they're also likely to multiply the word count on ads and associated disclosures since the products themselves are more complicated. And banks, just as with their credit card rewards programs, tend to mitigate payouts and rewards by imposing restrictions on them.

Take, for instance, Barclays'** Dream Account, which the U.K. bank is marketing online to U.S. customers. This product offers a 2.5% bonus on the total interest an accountholder has earned over a six-month period if and only if said holder meets the following (footnoted) requirements:

A bonus of 2.5% will be applied to interest accrued and paid in the previous six(6) months if six(6) consecutive monthly deposits are made to the account in the amount of $1,000 or less. A bonus of 2.5% will be applied to interest accrued and paid in the previous six(6) months, if there are no withdrawals from the account in any of the previous six(6) months. Bonuses will be paid to the account at the end of the month which the applicable conditions have been met.

Innovation is welcome, but not at the expense of transparency. There's already evidence to suggest that consumers find complex credit card rewards programs off-putting. And one of the reasons low-income consumers favor check cashers, and even payday lenders, is because their fee disclosures are upfront and easy to understand. 

As such, the most truly innovative checking or saving account of them all may be one that bankers don't have such a hard time explaining. And, at the very least, banks should cool it with the footnotes.

*A spokeswoman for PNC says this particular part of the website “is merely a summary of the key features and benefits of these account options” and that the footnotes “are intended to provide more comprehensive account information and details.”

**Andrew Harris, director of deposit products and customer experience at Barclays, says federal regulations “often require banks to disclose certain additional account information,” which may get included in footnotes. “Key product information is provided within the main body of our marketing,” he says. “Also, footnotes can be a useful tool in providing additional information for consumers at a quick glance without having to look through the complete terms and conditions, and can help provide insight into the sources of information used in the marketing statements.” 

Correction: An earlier version of this post gave an outdated figure for the number of banks that have adopted Pew Charitable Trusts' simplified disclosure box. It is now 26.