Hidden fees are forcing some consumers out of the traditional banking system.
One-third of low-income households that closed an account between 2009 and 2010 cited hidden or unexpected fees as their reason for doing so, according to a report released Tuesday by a division of The Pew Charitable Trusts (
“This data points to a real need for banks to better disclose their fees in a concise, easy-to-understand format,” Susan Weinstock, project director at the Pew Health Group, said in a press release.
Banks have long struggled to serve low-income consumers, who tend to rely more on such alternative financial-services providers as check cashers and payday lenders. Those companies have been criticized for the high fees they charge, but their prices are often more transparent to consumers than the ATM fees and overdraft penalties charged by banks.
The Pew Health Group’s Safe Banking Opportunities Project surveyed 2,000 working-poor households in Los Angeles in 2009 and 2010. It published its findings Oct. 18.
Between 2009 and 2010, 13% of survey respondents with bank accounts closed those accounts. One-quarter of the respondents said they closed their bank accounts because of a lack of funds or unemployment. One-third of the households that closed their accounts did not provide a reason, and 6% blamed poor customer service.
Half the respondents did not have a bank account when the survey began in 2009, while half had at least one account.
The report recommends that banks should “enable families to bank and save as productive clients by offering accounts with low minimum opening balance requirements, reasonable and transparent fees, and a comprehensive suite of financial products that meet the needs of low- and moderate-income families.”
Many banks have recently started charging consumers new fees for services that had long been free, including maintaining checking accounts and using their debit cards, in response to recent regulation capping debit card interchange fees.
But banks have also long charged consumers for other checking-related services, including for using out-of-network ATMs and for overdrawing their accounts.
Households with bank accounts use out-of-network ATMs an average of 3.6 times per month, meaning that they pay on average $162 annually, according to the report. Pew also found that almost one-third of banked households had been charged an overdraft fee in the past year, with two-thirds of that group saying they had been charged multiple fees for an overdraft.
Pew also took banks to task for processing debit transactions by starting with the largest dollar balances and working their way to the smallest, instead of in the order the transactions were made. Banks have been criticized for using this “high-to-low” strategy to maximize the revenue they collect from processing overdrafts.
Banks “should adopt neutral and objective transaction sequencing that is not designed to maximize overdraft penalties,” the report says.
Banks’ minimum-deposit requirements are also a significant obstacle for some low-income consumers, according to the report. Half of the unbanked households surveyed said the minimum deposit balance was the primary roadblock to opening an account in 2010, up from 30% of households in the previous year. About 12% of the unbanked households cited concerns over hidden fees as the reason for remaining unbanked.
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