Hidden Risks

QUICK SUMMARY

A checking account is the most basic and necessary financial product for American consumers. Nine out of 10 Americans have a checking account, making it the most widely utilized financial services product in the United States.

Executive Summary

A checking account is the most basic and necessary financial product for American consumers. Nine out of 10 Americans have a checking account, making it the most widely utilized financial services product in the United States. The federal government recognizes the importance of checking and other deposit accounts by insuring deposits up to $250,000 per account against the failure of the bank.¹ Checking accounts provide a secure way for Americans to collect earnings and make payments, and for many, they serve as the entry to the financial mainstream, where savings and credit products are available. As the vehicles for billions of transactions each day, checking accounts are essential to the national economy.

This ubiquitous product is at the center of profound changes to our system of transacting. Paper checks are increasingly a thing of the past as Americans use debit cards to access their checking accounts. The Check Clearing for the 21st Century Act of 2003 (Check 21 Act) allowed banks greater freedom to transmit funds electronically and reduced the paper trail provided to consumers.² Overdraft coverage programs once reserved for occasional use are now widespread. These changes are little understood by consumers, and their impact has been little studied. Scarce comprehensive data exist on the state of checking accounts in today's modern world.

In October 2010, the Pew Health Group's Safe Checking in the Electronic Age Project began a study of checking account terms and conditions to examine both the state of the marketplace and the effect of current regulations covering checking accounts. Pew analyzed more than 250 types of checking accounts offered online by the 10 largest banks in the United States, which hold nearly 60 percent of all deposit volume nationwide. In researching checking accounts, Pew charted the median and the range for many fees; the variations in key practices; and the extent of certain practices, including some that are the subject of legal challenges (see Table 4).³ Through this research, we identified five practices that put consumers at financial risk, potentially exposing them to high costs for little benefit.   

Pew's findings are as follows:

• Banks do not provide important policies and fee information in a concise and easy-to understand
  format that allows customers to compare account terms and conditions among banks. Pew's research showed that the median length of bank disclosures for key checking account policies and fee information was 111 pages. In addition, the banks often used different names for the same fee or service; put the information in differentdocuments, different media (Web or hard copy), or different locations in a document; and did not summarize or collect key information anywhere.
• Accountholders are not provided full information about the respective costs of overdraft options. All 10 of the banks in the study, for at least some transactions, offered programs—"overdraft penalty plans"—in which the bank covers overdrafts for a set per-overdraft charge. Nine of the 10 banks also offered "overdraft transfer plans" in which the bank transfers funds to cover overdrafts in a customer's checking account from the customer's savings account, credit card, or line of credit. Customers can also choose not to enroll in any overdraft plan to avoid these fees for ATM and point-of-sale (POS) debit card transactions. These planshave significantly different features and fees; however, banks are not required to provide full information at the time of opt-in about all overdraft options available, including the price for lower-cost options.
• Bank overdraft penalty fees are disproportionate to the size of the median overdraft amount. Overdraft fees will cost American consumers an estimated $38 billion in 2011—anall-time high.⁴ The median overdraft amount is $36, yet the median overdraft penalty fee is $35. In addition, the majority of checking accounts charged an extended overdraft fee after a median of seven days if the fees and principal were not paid. The median extended overdraft fee was $25. While banks have to incur a risk that they will not be repaid, most institutions manage this by limiting the overdraft amount given to any customer.⁵ Banks have long argued that overdraft penalty fees are not compensation for the cost of overdrafts to the bank but rather are designed to deter customers from repeating this behavior. Penalty fees in other consumer financial products (e.g., credit cards) are related in size to the violation.
• Banks reserve the right to reorder transactions in a manner that will maximize overdraft fees. Overdraft penalty fees are imposed each time a withdrawal is posted to an account with insufficient funds to cover it at that moment. Banks can maximize the number of times an account "goes negative" by reordering deposits and withdrawals to reduce the account balance as quickly as possible. Posting withdrawals before deposits and posting withdrawals from largest to smallest have the effect of maximizing overdrafts. Currently, no federal regulation governs posting order.⁶ Only two banks in this study, representing 48 percent of accounts, commit to posting deposits before withdrawals. The rest reserve the right to post withdrawals first. As of October 2010, when Pew collected its data, all banks studied reserved the right to reorder transactions from highest to lowest amount. Since then, a limited number of banks have altered this policy and no longer post all withdrawals from highest to lowest for all of their accounts.
• More than 80 percent of accounts examined contain either binding mandatory arbitration agreements or fee-sharing provisions that require the accountholder to pay the bank's losses, costs, and expenses in a legal dispute regardless of the outcome of the case.⁷ Seventy-one percent of account agreements reviewed by Pew require accountholders to submit to the decision of a private arbitrator selected by the bank in the case of a dispute. An additional 12 percent of checking account agreements in this study provided that accountholders have the right to settle their claims in a court, but the customer is liable for the bank's losses, costs, and expenses regardless of outcome. In the Wall Street Reform and Consumer Protection Act of 2010, Congress required the newly created Consumer Financial Protection Bureau (CFPB) to look at mandatory arbitration in contracts for financial products and services and, based on the findings, authorized the CFPB to write new rules limiting these clauses.⁸

Based on these findings, Pew recommends the following policy solutions to protect consumers, promote a competitive marketplace, and foster a level playing field among financial institutions:

• Policy makers should require depository institutions to provide information about checking account terms, conditions, and fees in a concise, easy-to-read format, similar to the Schumer Box used for credit cards.⁹
• Policy makers should require depository institutions to provide accountholders with clear, comprehensive pricing information for all available overdraft options when a customer is considering opting in to a program so that the customer can make the best choice among overdraft options, including choosing not to opt in for any overdraft coverage.
• Policy makers should require overdraft penalty fees to be reasonable and proportional to the bank's costs in providing the overdraft loan. Furthermore, we suggest that regulators monitor overdraft transfer fees and impose similar reasonable and proportional requirements if it appears that they are becoming so disproportionate as to suggest that they have become penalty fees as well.
• Policy makers should require depository institutions to post deposits and withdrawals in a fully disclosed, objective and neutral manner that does not maximize overdraft fees, such as in chronological order.
• The Consumer Financial Protection Bureau, in its study of arbitration agreements, should examine the prevalence of binding arbitration clauses; of fee shifting provisions; and of "loss, costs, and expenses" clauses in checking accounts and assess whether such provisions prevent consumers from obtaining relief.

REPORT CONTENTS

Introduction

A checking account is the financial cornerstone for the overwhelming majority of American families—often the bank product that provides consumer entry into the financial mainstream. Nine in 10 adult Americans have a checking account, representing a significantly larger proportion of the population than those holding a mortgage or credit card.¹⁰ Millions of consumers use bank or credit union checking accounts every day to collect their earnings and pay their bills. The federal government, through the Federal Deposit Insurance Corporation (FDIC), encourages the use of checking accounts by providing a guarantee that the money in them (up to $250,000 per account) is safe even if the bank fails.¹¹ As a result of these factors, checking accounts have come to play a vital role in the American economy by facilitating the safekeeping and transfer of funds for consumers and offering a gateway to savings and credit required for investments such as the purchase of homes and higher education. It is to the benefit of banks and consumers, and the nation as a whole, that checking accounts be safe and user friendly.

Yet checking accounts lack some important types of consumer protections compared to other consumer financial products. For example, credit cards have limitations on the dollar amount of late fees and over-the-limit fees.¹² In addition, their applications must clearly and concisely disclose key terms in what is known as a "Schumer Box" (see Figure 2).¹³ In contrast, checking accounts have neither limitations on fees nor any requirements that critical information be presented in a consolidated format.

Regulators are authorized by federal banking laws to reduce risks to consumers in checking accounts, but that authority has not been actively utilized.¹⁴ Checking accounts are subject to disclosure requirements under the Truth in Savings Act and the Electronic Fund Transfer Act.¹⁵ However, Pew's research shows that these requirements have not been effective in producing clear and useful information for consumers. In addition, the Electronic Fund Transfer Act and the Uniform Commercial Code provide certain dispute rights to consumers.¹⁶ The Expedited Funds Availability Act governs how long a bank may hold a deposit before posting it to a customer's checking account.¹⁷ Despite substantial advances in technology that speed the processing of a deposit, the Board of Governors of the Federal Reserve (the Fed) has only recently proposed the first update in over 20 years to the relevant regulations.¹⁸ Protections are also found in the Federal Trade Commission Act (FTCA), which defines "unfair or deceptive acts or practices" (UDAP) and allows certain banking regulators to ban such practices, yet no federal agency has ever applied these provisions to checking account practices.¹⁹

Nine of the 10 banks in our study are currently supervised by the Office of the Comptroller of the Currency.²⁰ The Fed, under the FTCA, has the authority to write UDAP regulations governing providers of checking accounts and other consumer financial products.²¹ However, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 transfers rule-writing authority and supervision for all 10 of the banks that Pew examined to the new Consumer Financial Protection Bureau (CFPB), and its regulatory reach will include the power to ban those practices that are deemed to be "abusive" and "unfair or deceptive."²² Beyond this broad authority, the CFPB is also authorized to write regulations to ensure that the features of any consumer financial product or service are fully, accurately, and effectively disclosed.²³

In October 2010, the Pew Health Group's Safe Checking in the Electronic Age Project began a study of checking account terms and conditions to examine both the state of the marketplace and the effect of current regulations covering checking accounts. This expansive research analyzed more than 250 types of checking accounts offered online by the 10 largest banks in the United States, which hold nearly 60 percent of all deposit volume nationwide.²⁵

To evaluate the safety and transparency of checking accounts, Pew sought to quantify both the types and size of fees, as well as the important bank policies that Americans are most likely to encounter while using their checking accounts. In researching checking accounts, Pew charted the median and the range for many fees; the variations in key practices; and the extent of certain practices, including some that are the subject of legal challenges.²⁶ Pew researchers collected checking account data found both online and in paper copy at bank branches (see Appendix B: Methodology).²⁷

From this research, we identified patterns that impose hidden, unnecessary, and potentially dangerous risks on consumers. Based on these findings, we segmented this paper into five topic areas: disclosure, overdraft options, overdraft fees, processing of deposits and withdrawals, and dispute resolution. Potential solutions to undue risks are also indentified.

Model Disclosure Box

Disclosure

Product information, from nutrition labels on food to dealer stickers on new cars, allows consumers to make informed choices when selecting and purchasing goods. In the world of consumer finance, disclosure functions as the threshold mechanism to protect consumers. Full and accurate transparency in fees and services is essential to keeping consumer markets fair for both buyers and sellers. Disclosure is critical to promote competition, which requires informed customers who can rationally choose among available products and services.

The checking accounts in this study had a median of 111 pages of disclosure documents, consisting of account agreements, addendums to account agreements, fee schedules, and pages on the bank's Web site. Many of these documents are not user friendly, with much of the text densely printed, difficult to decipher, and highly technical and legalistic.

None of the banks examined collected key information in a single place. Rather, most disperse key terms and conditions across multiple lengthy documents of different types, making it extremely difficult for consumers to identify and locate the information they need when comparing and choosing checking accounts. Further complicating the matter, different banks locate the same information in different places. As a result, consumers must navigate a confusing maze of disclosure documents in their efforts to locate all of the important account information. Pew's research indicates a need for improved, organized disclosure of the terms and conditions of checking accounts.

Only two pieces of information were generally accessible on every account's Web page: the monthly fee and a list of possible ways to avoid the monthly fee. Key terms and conditions such as the amount of any overdraft fee or stop payment fee were not available on the account Web pages of nine out of 10 banks in the study. As noted in Table 1, Bank of America provided the most information for account terms and fees. However, six key terms were not available on any of the banks' account Web pages: the order in which the bank processed credits and debits, the overdraft transfer fee, the fee when a bank rejects a check written to the customer for nonsufficient funds, dispute restrictions, other service fees, and the deposit hold policy.

Because there is no industry-wide consensus on terminology, different names are used for the same fees and stipulations. For example, what this report refers to as an overdraft penalty fee was described by different banks variably as an "overdraft fee," "overdraft item fee," "insufficient funds fee," "unavailable funds fee," "overdraft item paid fee," "unavailable funds penalty," or a "returned/paid items fee."

Overdraft Options

Currently, there are two main categories of overdraft products. Because banks describe these using dissimilar terms, for the purposes of this report, "overdraft penalty plans" are defined as short-term advances made for a fee by the bank to cover an overdraft. On the other hand, "overdraft transfer plans" involve a transfer from another account or plan, either a savings account, credit card, or overdraft line of credit, to pay for any overdrafts. Customers must affirmatively sign up for such plans and establish the second account.

Overdraft Penalty Plans

Every checking account analyzed offered an overdraft penalty plan for at least some transactions. Under such plans, when a customer's withdrawal or purchase exceeds the checking account balance, the bank has the discretion to allow the transaction and pay—for a fee—the overdraft via a short-term advance; however, the bank is not obligated to cover any overdrafts. If the bank covers the transaction, the customer must repay both the overdraft amount and the fee in a short period of time—usually less than a week—or incur another fee known as an extended overdraft fee.

As of August 15, 2010, financial institutions must obtain the affirmative consent (known as opt-in) of customers before enrolling them in an overdraft penalty plan that covers debit card transactions at points-of-sale and ATMs.³⁸ If a customer does not opt in, any debit card transactions that overdraw the account will be denied with no fee charged. However, banks can apply overdraft penalty plans for overdrafts by checks and deductions made through the Automated Clearinghouse (ACH) network without obtaining affirmative customer consent.

Two of the banks included in this study, Bank of America and Citibank, have publicly indicated that they will not charge overdraft penalties on either debit or ATM transactions.³⁹ While Bank of America specifically states this in its account disclosures, Pew researchers were unable to find similar explicit disclosure in the Citibank "Client Manual."⁴⁰

Overdraft Transfer Plans

Nine of 10 banks studied (representing 98 percent of accounts) offered overdraft transfer plans. In such plans, if a customer makes a transaction that overdraws his or her checking account, the bank arranges for the payment of that transaction by transferring money to the customer's checking account from the customer's linked savings account, credit card, or overdraft line of credit. The bank charges a fee for processing this transfer of funds.

Processing of Deposits and Withdrawals

Transactions presented on a given day for posting are frequently processed in an order different from that in which they occurred. Such a reordering can greatly impact the overdraft fees incurred by consumers. Pew's research shows that, in October 2010, only one of the 10 banks studied, representing less than five percent of accounts, informed accountholders of the order in which all debits and credits are posted.

Two of the 10 banks studied (representing 48 percent of accounts) informed customers that they process credits before debits for that day. The other eight reserved the right to process debits before credits. Of these, two (representing 20 percent of accounts) explicitly reminded customers that the posting order was at the bank's discretion, and six (32 percent of accounts) failed to disclose their debit-credit processing order, implicitly retaining the right to post debits before credits.

As of October 2010, when Pew collected its data, all banks and all accounts in Pew's study reserved the right to process all debits presented in a given day from highest dollar amount to lowest dollar amount. Since that time some banks have begun disclosing changes to their practices. For example, Wells Fargo, Chase, and Citibank disclosed that they would no longer reorder certain types of transactions for at least a portion of their accounts.⁶¹ A recent court ruling required Wells Fargo to change its policy on deposit sequencing.

Pursuant to a court order arising from the California case Gutierrez v. Wells Fargo, Wells Fargo has stated that it will now process ATM and debit card transactions from low to high for accounts in that state. Wells Fargo has indicated that beginning in May 2011, it will post most transactions chronologically or low to high for all accounts. Chase Bank also updated its posting order policy for all of its accounts and disclosed that it processes debits "in the order in which they were authorized, withdrawn, cashed, or deposited, as appropriate. When this is not possible because of the bundling of transactions, the posting order will be from highest to lowest amount."⁶² It has been reported that as of July 2011, Citibank will begin clearing smaller checks before larger ones.⁶³

Dispute Resolution

All 265 accounts examined had some kind of dispute resolution restriction clause in their agreements that limited the options available to a customer seeking to enforce his or her rights under the bank's terms. The overwhelming majority of these, 255 accounts (representing eight out of 10 banks), required the accountholder to waive the right to trial by jury. For 189 of these accounts (representing four out of 10 banks and 71 percent of all accounts), the accountholder had to waive the right to a trial before a judge and agree to have the dispute resolved before a private arbiter of the bank's choice. One bank (representing six percent of accounts) required customers to accept binding arbitration if they did not explicitly opt out in writing within 45 days of account opening.

On top of these restrictions of consumers' legal rights, six banks (representing 19 percent of accounts) include fee-shifting provisions in their account contracts. If these clauses were enforced as written, a customer who prevailed against a bank would theoretically end up paying the bank for the results of that win.

Pew's research shows that Bank of America places the fewest restrictions on customers' access to legal remedies. This bank allowed customers to go before a judge and did not disclose any fee-shifting agreements.

The Cost of a Checking Account

For this report, Pew tracked bank practices regarding the cost of the important fees and the terms of the key policies included in the model disclosure box in Figure 2. Table 4 summarizes Pew's findings on this data collected from the checking accounts offered by the banks included in this study.

Conclusion and Recommendations

Pew's research shows that it is exceedingly difficult for an average American to find the basic information needed to either select a checking account or to responsibly manage his or her existing account. Assembling information from over 100 pages of disclosure materials represents a daunting task, even for the most financially savvy consumer. Such deficiencies call for action that requires depository institutions to disclose fully and clearly key checking account terms, policies, and fees in a concise, consolidated format.

Furthermore, consumers must be provided with complete and unbiased information in regards to overdraft options. Accountholders should not be subjected to unrestrained overdraft fees or to hidden practices that maximize overdrafts. Overdraft fees, like other penalty fees, should be responsible and proportional to the bank's cost. Posting order should be objective, neutral, and clearly disclosed, and should not be used to maximize overdraft fees. Finally, the CFPB, in its study of binding arbitration clauses, should include a thorough examination of clauses that purport to make accountholders liable for the bank's costs regardless of the outcome of the case.

The free market system is predicated on the idea of competition. Increased disclosure, presented in an understandable format, helps create a better-functioning marketplace by allowing consumers to compare prices and features. Potential customers have the opportunity to preview terms and conditions for some financial products. For example, credit cards are required by law to disclose key terms and conditions in an easy-to-read format (the Schumer Box) before a potential customer applies for a card. Similarly, mortgage originators are required to provide families considering the purchase of a home with a good faith estimate.

We encourage similar transparency in checking accounts that will stimulate a healthier marketplace for consumers and banks alike. Amending and simplifying this process is essential for competition to thrive.

Policy Recommendations 

Pew recommends the following policy solutions to address the findings of our study. While industry can make these changes voluntarily, policy makers should create a level playing field.

Disclosure

Policy makers should require depository institutions to provide information about checking account terms, conditions, and fees in a concise, easy-to-read format, similar to the Schumer Box used for credit cards. Pew has developed a disclosure box (Figure 2) as a model for providing such information to consumers.

Overdraft Options

Policy makers should require depository institutions to provide accountholders with clear, comprehensive pricing information for all available overdraft options when a customer is considering opting in to a program so that the customer can make the best choice among overdraft options, including choosing not to opt in for any overdraft coverage.

Overdraft Fees

Policy makers should require overdraft penalty fees to be reasonable and proportional to the bank's costs in providing the overdraft loan. Furthermore, we suggest that regulators monitor overdraft transfer fees and impose similar reasonable and proportional requirements on them if it appears that they are becoming so disproportionate as to suggest that they have become penalty fees as well.

Processing of Deposits and Withdrawals

Policy makers should require depository institutions to post deposits and withdrawals in a fully disclosed, objective and neutral manner that does not maximize overdraft fees, such as in chronological order.

Dispute Resolution

The Consumer Financial Protection Bureau, in its study of arbitration agreements, should examine the prevalence of binding arbitration clauses, of fee-shifting provisions, and of "loss, costs, and expenses" clauses in checking accounts and assess whether such provisions prevent consumers from obtaining relief.

REFERENCES

1. Federal Deposit Insurance Act, 12 U.S.C.S. § 1821.

2. Check Clearing for the 21st Century Act (Check 21), 12 U.S.C.S § 5001 et seq.

3. See, e.g., In re Checking Account Overdraft Litig., 734 F. Supp. 2d 1279 (S.D. Fla. 2010).

4. Press Release, Moebs Services, Overdraft Fee Revenue Drops to 2008 Levels for Banks and Credit Unions, (Sept. 15, 2010), original link: http://www.moebs.com/Pressreleases/tabid/58/ctl/Details/mid/380/ItemID/193/Default.aspx.

5. "Most banks (73.0 percent) with automated overdraft programs established overdraft coverage limits for customers in their written policies, consistent with the bank's lending policies. However, large banks were more likely than small banks to specify coverage limits on automated over draft programs in their written policies. About 83 percent of large banks established credit limits, compared with 65.2 percent of small banks. Automated overdraft coverage limits stipulated in written policies ranged from $85 to $10,000, and the median credit limit was $500. As with per-item fees, overdraft coverage limits established in policies also tended to be lower for small banks." Federal Deposit Insurance Corporation, "Study of Bank Overdraft Programs" (November 2008) p 16, original link:  http://www.fdic.gov/bank/analytical/overdraft/FDIC138_Report_Final_ v508.pdf.

6. Expedited Funds Availability Act, 12 U.S.C.S. § 4002 (regulating when deposited funds must be made available), 12 U.S.C.S. § 4004 (providing for disclosure to customers of a bank's funds availability policies). The FDIC and OTS have issued guidance to the financial institutions that they oversee regarding best practices and admonishing financial institutions for manipulating transaction order, but these guidelines fall short of binding federal regulation. Federal Deposit Insurance Corporation Supervisory Guidance for Overdraft Protection Programs and Consumer Protection FIL-81-2010 (Nov. 24, 2010); Office

of Thrift Supervision Guidance on Overdraft Protection Programs, 70 Fed. Reg. 8428 (Feb. 18, 2005), original link: http://files.ots.treas.gov/480028.pdf.

7. The "loss, costs, and expenses" clauses are found in the account agreements of four banks: PNC Bank, "Disputes Involving Your Account," in Account Agreement for Personal Checking, Savings, and Money Market Accounts, 10 (2010); TD Bank, "Indemnity," in Personal Deposit Account Agreement, 20 (June 2010); SunTrust, "Adverse Claims," in Rules and Regulations for Deposit Accounts, 20 (June 2010); HSBC, "Reimbursement of Bank in the Event of a Dispute," in Rules for Deposit Accounts, 27 (June 2010).

8. Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, 111 Pub. L. No. 203, § 1028, 12 U.S.C.S. § 5518.

9. 12 C.F.R. § 226.5a.

10. Brian K. Bucks, Arthur B. Kennickell, Traci L. Mach & Kevin B. Moore, "Changes in U.S. Family Finances from 2004 to 2007: Evidence from the Survey of Consumer Finances," Federal Reserve Board - Division of Research and Statistics, February 2009, original link: http://www.federalreserve.gov/pubs/bulletin/2009/pdf/scf09.pdf.

11. Federal Deposit Insurance Act, 12 U.S.C.S. § 1821.

12. The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009, 111 Pub. L. No. 24, 15 U.S.C.S. § 1665d.

13. 12 C.F.R. §226.5a; Senator Charles E. Schumer, http://www.schumer.senate.gov/new_website/consumers.cfm.

14. Federal Deposit Insurance Act, 12 U.S.C.S. § 1811 et seq.; Truth in Savings Act, 12 U.S.C.S. § 4301 et seq.; Electronic Fund Transfer Act, 15 U.S.C.S. § 1693 et seq.; 12 C.F.R. § 205.1 et seq.; 12 C.F.R. § 230.1 et seq. Following implementation of the Wall Street Reform and

Consumer Protection Act on July 21, 2011, the Consumer Financial Protection Bureau will also be empowered to reduce the risks to consumers in checking accounts (Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, 111 Pub. L. No. 203, § 1011 et seq., 12 U.S.C.S. § 5491 et seq.).

15. Truth in Savings Act, 12 U.S.C.S. §§ 4302-4304; Electronic Fund Transfer Act, 15 U.S.C.S. §§ 1693b-1693d; 12 C.F.R. §§ 205.4, .7-.9, .17, 230.3-.6, .11.

16. 12 C.F.R. 205.11; U.C.C. § 4-402 (2005).

17. Expedited Funds Availability Act, 12 U.S.C.S. § 4002.

18. 12 C.F.R. § 229.12; Proposed Rule, Availability of Funds and Collection of Checks, 76 Fed. Reg. 16862 (March 25, 2011).

19. Federal Trade Commission Act, 15 U.S.C.S. § 57a(f). The Board of Governors of the Federal Reserve issued regulations under the FTCA, including restrictions on unfair credit contract provision, misrepresentations to cosigners, and charging late fees for the untimely payment of late fees. 50 Fed. Reg. 16695 (April 29, 1985). Subsequently, the FTCA rules in Federal Reserve Board Regulation AA were reserved and replaced in Regulation Z by rules implementing the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009, 111 Pub. L. No. 24, 15 U.S.C.S. § 1601 et seq.; 12 C.F.R. § 226.1 et seq.; 75 Fed. Reg. 7658 and 7926 (Feb. 22, 2010). Additionally, the Office of Thrift Supervision and National Credit Union Administration have limited their current regulation of unfair and deceptive practices to consumer credit contracts. 12 C.F.R. § 535.1 et seq.; 12 C.F.R. § 706.1 et seq. (these were not affected by the CARD Act). Agencies empowered to take action against unfair and deceptive acts or practices include the Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation. Following implementation of the Wall Street Reform and Consumer Protection Act on July 21, 2011, the Consumer Financial Protection Bureau will also be empowered to take action

against unfair, deceptive, and abusive acts or practices. Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, 111 Pub. L. No. 203, § 1031, 12 U.S.C.S. § 5531.

20. For a list of the roles of the various federal banking regulators, please see: U.S. Securities and Exchange Commission, "Banking Regulators," available at http://www.sec.gov.

21. Federal Trade Commission Act, 15 USCS § 57a(f).

22. Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, 111 Pub. L. No. 203, § 1031, 12 U.S.C.S. § 5531.

23. Id. § 1032, 12 U.S.C.S. § 5532. The Act requires that the disclosure information provide consumers with the ability to understand the costs, benefits, and risks associated with the product or service. The Act specifically allows the CFPB to include in its rulemaking the use of a model form that includes plain language, clear format and design, and succinct information. Any financial institution that uses the model form will be deemed to be in compliance with the CFPB's disclosure requirements.

24. Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, 111 Pub. L. No. 203, § 1031(d), 12 U.S.C.S. § 5531(d).

25. The proliferation of so many checking accounts among only 10 banks is largely due to state-by-state variations for each type of checking account a bank offered. For example, although Bank of America only offered three types of checking accounts online in October 2010— Advantage with Tiered Interest, eBanking, and MyAccess Checking—they actually had 38 unique checking accounts in this study because the terms and conditions for each of those three types of checking accounts are not the same in all 50 states.

26. See, e.g., In re Checking Account Overdraft Litig., 734 F. Supp. 2d 1279 (S.D. Fla. 2010).

27. Payments Source Database, "Total Deposits" (October 2010).

28. Truth in Savings Act, 12 U.S.C.S. § 4303(a), (d).

29. Id. § 4308 (providing authority to issue regulations and model forms); § 4309 (providing authority to enforce compliance with TISA requirements). See also, id. § 4303(e) (noting that disclosures must be clear, in plain language, and readily understandable).

30. Electronic Fund Transfer Act, 15 U.S.C.S. § 1693c(a).

31. Id. §§ 1693o, 1693b(b).

32. 12 C.F.R. § 230.4(b)(3)(i)(A), (4).

33. Id. § 230.3(a).

34. 12 C.F.R. § 230 Supp. I 230.3(a)(1)(i), (iv).

35. Id. § 230.3(a)(1)(ii)-(iii).

36. 12 C.F.R. § 205.7(b)(1), (4)-(5).

37. Id. § 205.7(a) (regulation requires disclosure "at the time a consumer contracts for an electronic fund transfer service or before the first electronic fund transfer is made…").

38. Id. § 205.17(b)(1), (c).

39. Protecting Consumers from Abusive Overdraft Fees: The Fairness and Accountability in Receiving Overdraft Coverage Act Hearing, Before the S. Comm. on Banking, Housing, and Urban Affairs, 111th Congress (Nov. 17, 2009) (testimony of John P. Carey, Citigroup North America Consumer Banking), original link: http://www.banking.senate.gov/public/index.cfm?FuseAction=Files.View&FileStore_ id=5fc3d6c8-2f17-4f94-a30f-37d28a69e6d0; Andrew Martin, "Bank of America to End Debit Overdraft Fees," N.Y. Times, March 9, 2010, available at http://www.nytimes.com/2010/03/10/your-money/credit-and-debit-cards/10overdraft.html.

40. Bank of America, Deposit Agreement and Disclosures—Effective June 19, 2010—Arizona, Arkansas, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Maine, Maryland, Massachusetts, Michigan, Missouri, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Virginia and Washington D.C., original link: https://www3.bankofamerica.com/deposits/odao/popup/disclosure_popup.cfm?template=dad&Requ estTimeout=300; Citibank, Client Manual— Consumer Accounts—Including Our Privacy Notice—U.S. Markets—Effective July 1, 2010, available at https://online.citibank.com/JRS/popups/ao/Client_Manual_20100701.pdf.

41. 12 C.F.R. § 204.2(d)(2). For overdraft transfers that link to a line of credit or credit card, the accountholder will pay a minimal amount of interest in addition to the overdraft transfer fee.

42. 12 C.F.R. § 205.17(a), (b), (d)(5).

43. 12 C.F.R. § 205 App. A-9. The current model disclosure issued by the Federal Reserve only recommends the following statement: "We also offer overdraft protection plans, such as a link to a savings account, which may be less expensive than our standard overdraft practices. To learn more, please ask us about these plans."

44. Federal Deposit Insurance Corporation, "Study of Bank Overdraft Programs" (November 2008), original link:  http://www.fdic.gov/bank/analytical/overdraft/FDIC138_Report_Final_v508.pdf.

45. Banks typically assess an extended overdraft fee (explained in a subsequent paragraph) after a balance is negative for seven days.We use this seven-day period in our calculation for this reason.

46. 12 C.F.R. § 204.2(d)(2).

47. "Excessive overdraft fees are analogous to loan flipping," in Comments of Center for Responsible Lending, Consumer Federation of America, National Consumer Law Center (on behalf of its low-income clients) and Consumer Action, Consumers Union, National Association of Consumer Advocates,U.S. PIRG, on FDIC's Proposed Overdraft Payment Supervisory Guidance FIL 47 2010, (September 27, 2010), 10. 

48. Dennis Campbell, Asis Martinez Jerez & Peter Tufano, Bouncing Out of the Banking System: An Empirical Analysis of Involuntary Bank Account Closures (Harvard Business School, June 6, 2008). See also Michael S. Barr, Financial Services, Savings and Borrowing Among Low- and Moderate-Income Households: Evidence from the Detroit Area Household Financial Services Survey (University of Michigan Law School, March 30, 2008) (finding that among those surveyed who formerly had a bank account, 70% chose to close the account themselves, citing moving, worrying about bouncing checks, and excessive fees as their reasons for closing the account. The remaining formerly banked, 30%, reported that their bank closed their account; the primary reason was bounced checks and overdrafts).

49. Federal Deposit Insurance Corporation Supervisory Guidance for Overdraft Protection Programs and Consumer Protection, FIL-81¬2010 (Nov. 24, 2010).

50. 12 C.F.R. § 227.1 et seq.; 12 C.F.R. § 535.1 et seq.; 12 C.F.R. § 706.1 et seq.

51. Id.

52. Federal Deposit Insurance Corporation Supervisory Guidance for Overdraft Protection Programs and Consumer Protection, FIL-81¬2010 (Nov. 24, 2010).

53. Office of Thrift Supervision Guidance on Overdraft Protection Programs, 70 Fed. Reg. 8428 (Feb. 18, 2005), original link: http://files.ots.treas.gov/480028.pdf.

54. Center for Responsible Lending, "Overdraft Loans: Survey Finds Growing Problem for Consumers" (April 24, 2006), original link: 

http:// www.responsiblelending.org/overdraft-loans/research-analysis/ip013-Overdraft_Survey-0406.pdf; Federal Deposit Insurance Corporation, "Study of Bank Overdraft Programs" (November 2008), available at http://www.fdic.gov/bank/analytical/overdraft/FDIC138_Report_Final_v508.pdf.

55. Id.

56. Pew Health Group, "Unbanked by Choice: A look at how low-income Los Angeles households manage the money they earn" (July 2010), original link: 

http://www.lafla.org/pdf/Unbanked_PEW2010.pdf.

57. The Overdraft Protection Act of 2009: Hearing Before H. Comm. on Financial Services, 111th Cong. 7-9 (2009) (statement of Nessa Feddis, VP and Senior Counsel, American Bankers Ass'n).

58. The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009, 111 Pub. L. No. 24, 15 U.S.C.S. § 1665d(a).

59. Id.

60. 12 C.F.R. § 226.52(b).

61. Due to rapid developments related to bank re-ordering practices, Pew researchers continued to monitor changes for these practices until publication of this report in late April 2011.

62. Chase, Account Rules and Regulations—Your Guide To: Checking, Savings, Certificates of Deposit, Overdraft Protection, Privacy Notice (Jan. 1, 2011).

63. Dickler, Jessica, "Good news on overdrafts! Citi will pay small checks first," CNN Money, Apr. 4, 2011, original link: 

http://money.cnn.com/2011/04/04/pf/citi_check_cashing/index.htm.

64. A few state laws address the issue, mostly with a "good faith" requirement.

65. Federal Deposit Insurance Corporation Supervisory Guidance for Overdraft Protection Programs and Consumer Protection, FIL-81¬2010 (Nov. 24, 2010).

66. Gutierrez v. Wells Fargo Bank, 730 F. Supp. 2d 1080, 1114 (N.D. Cal. 2010) (Wells Fargo's expert witness is quoted as follows: "Even if they were to read, word for word…some of those lengthy documents, such as the account agreement…it would be impossible for [customers] to predict the exact balance [of their checking accounts] at any particular point in time.").

67. Prior to Gutierrez, 730 F. Supp. 2d 1080, numerous lawsuits challenged high-to-low posting order policies that increased the number of overdraft and NSF fees customers incurred. These lawsuits were brought under state contract and consumer protection laws. See, e.g., Hill v. St. Paul Fed. Bank for Savings, 329 Ill. App. 3d 705 (Ill. App. Ct. 2002) (consumer fraud, UCC, and deceptive business practices claims failed); Hassler v. Sovereign Bank, 644 F. Supp. 2d 509 (D. N.J. 2009) (consumer fraud, unjust enrichment, and contract claims failed). Regardless of the legal theory presented, all of these plaintiffs failed in their lawsuit. Since the $203 million judgment was handed down in Gutierrez, several banks have settled similar class action suits for millions of dollars. See, e.g., Trombley

v. National City Bank, 2011 U.S. Dist. LEXIS 2509 (D.D.C. 2011). In addition, a multidistrict litigation case is pending in the Southern District of Florida. This case is a consolidation of many class action suits from around the country challenging various banks' high-to-low posting order policies. In total, 31 banks are or were defendants, including 27 of the 44 largest financial institutions by deposit volume and all ten Pew analyzed. In re Checking Account Overdraft Litig., 2010 U.S. Dist. LEXIS 85494 (J.P.M.L. 2010).

68. E.g., In re Checking Account Overdraft Litig., 694 F. Supp. 2d 1302 (S.D. Fla 2010).

69. The Overdraft Protection Act of 2009: Hearing Before H. Comm. on Financial Services, 111th Cong. 7-9 (2009) (statement of Nessa Feddis, VP and Senior Counsel, American Bankers Ass'n). See also, Gutierrez v. Wells Fargo Bank, 730 F. Supp. 2d 1080, 1107 (N.D. Cal. 2010) ("Some banks argued that most customers prefer high-to-low posting because it results in their largest bills being paid first.").

70. In his opinion, the judge in Gutierrez found that "the only motives behind the challenged practices were gouging and profiteering" and high to low processing is "a trap—a trap that would escalate a single overdraft into as many as ten through the gimmick of processing in descending order. It then exploited that trap with a vengeance, racking up hundreds of millions off the backs of the working poor, students, and others without the luxury of ample account balances." Gutierrez v. Wells Fargo Bank, 730 F. Supp. 2d 1080, 1112, 19 (N.D. Cal. 2010).

71. See, e.g., Larin v. Bank of America, 725 F. Supp. 2d 1212 (S.D. Cal. 2010); Montgomery v. Bank of America, 515 F. Supp. 2d 1106 (C.D. Cal. 2007).

72. Gutierrez v. Wells Fargo Bank, 730 F. Supp. 2d 1080 (N.D. Cal. 2010). A federal court in Missouri also rejected the preemption argument in September 2010. Joseph v. Commerce Bank N.A., 2010 U.S. Dist. LEXIS 97664 (W.D. Mo. 2010).

73. Gutierrez, 730 F. Supp. 2d 1080, 1124.

74. In re Checking Account Overdraft Litig., 734 F. Supp. 2d 1279 (S.D. Fla. 2010).

75. The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009, 111 Pub.

L. No. 24, 15 U.S.C.S. § 1665d(e); 12 C.F.R. 226.52(b).

76. Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, 111 Pub. L. No. 203, § 1032(d), 12 U.S.C.S. § 5532(d).

77. David S. Schwartz, "Mandatory Arbitration and Fairness," 84 Notre Dame Law Review 3 (June 1, 2009); Amanda Perwin, "Mandatory Binding Arbitration: Civil Injustice by Corporate America" (August 2005), Center for Justice & Democracy: New York, original link: 

http://www.centerjd.org/archives/issues-facts/ArbitrationWhitePaper.pdf.

78. Federal Arbitration Act, 9 USC § 2; Tillman v. Commer. Credit Loans, Inc., 655 S.E.2d 362, 370 (N.C. 2008). See Johnson v. Keybank Nat'l Ass'n (In re Checking Account Overdraft Litig.), 718F. Supp. 2d 1352, 1358 (S.D. Fla. 2010).

79. In re Checking Account Overdraft Litig., 694F. Supp. 2d 1302 (S.D. Fla 2010); Johnson v. Keybank Nat'l Ass'n (In re Checking Account Overdraft Litig.), 718 F. Supp. 2d 1352, 1358

(S.D. Fla 2010).

80. Big Lots Stores v. Luv N' Care, 302 Fed. Appx. 423, 426 (6th Cir. 2008); Miles v. The N.Y. State Teamsters Conf. Pension & Ret. Fund Employee Pension Benefit Plan, 698 F.2d 593, 601-02 (2d Cir. 1983); Southwest Marine, Inc. v. Campbell Indus., 796 F.2d 291, 292-93 (9th Cir. 1986) (Noonan, J., concurring).

81. Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, 111 Pub. L. No. 203, § 1028(a), 12 U.S.C.S. § 5518(a).

82. Id. § 1028(b), 12 USCS § 5518(b).

83. U.C.C. § 4-403 (2005) "(b) A stop-payment order is effective for six months, but it lapses after 14 calendar days if the original order was oral and was not confirmed in a record within that period. A stop-payment order may be renewed for additional six-month periods by a record given to the bank within a period during which the stop-payment order is effective."Original link: at http://www.law.cornell.edu/ucc/4/article4.htm#s4-303.