Everyone is talking about the big Pew Charitable Trust report on the nation’s biggest 36 banks. For some banks, the news was better than others; however, the big reveal is found in the message consumers are sending: enough already with the banking account disclosures. Specifically, they say transparent financial disclosures are needed. They say that not only are they filled with too much “mumbo jumbo”, but they lack transparency, too. While they say the information is important, what they’re fed up with is the inability to understand much of it.
Transparent Financial Disclosures Rare
And it’s true: Mark Hochhauser, Ph.D., a Readability Consultant, did a survey where he analyzed sixty financial disclosures and privacy notices. What he found was the majority of them were written at a 3rd or 4th year college level. He incorporated several different programs, all of which are part of the Flesch Reading Ease Score (the same model most journalism bloggers use in their online efforts). Those included Prose, WStyle 1.6, Grammatik 6.0, Reader 1.2, and Correct Grammar 2.0. These programs calculated the Flesch Reading Ease Score, writing style, sentence and vocabulary complexity and word commonness.
Instead of being written in plain English, the 60 privacy policies and financial disclosures average a 3rd-4th year college (grade 15.6) reading level, making them “difficult” to read on the Flesch Reading Ease Score. Most writers shoot for about 60 to 69 Flesch score. The policies were written with scores of 0 to 29. The average reader finds these policies difficult, if not impossible to understand.
Most American adults with a high school degree can read at least at a 9th grade reading level. Literacy experts have long since suggested our financial documents be tailored for readers and the assumption that no one reads higher than a 9th grade level (many do, of course, but for a broad “middle ground”, this is what most experts agree).
And now, with the new Pew report, 80 percent only cement the previous study and say a “positive change” would be had with a simpler disclosure document.
We also learned which banks ranked worst in the survey. Those included banks with habits of hiding important information from customers and not providing details on how they handle things like NSF charges. The lowest ranked banks were First Niagara, BBVA Compass, First Tennessee Bank and Sovereign Bank.
The best banks, however, were defined as ones that provided their customers with “clear and concise disclosures about costs and terms”, made significant strides in reducing overdraft incidents and eliminated those practices that maximized overdraft fees (which equated to bank profits). These banks also provided “meaningful” efforts in resolving customer problems rather than mandatory binding arbitration clauses in their banking account agreements.
The study also included only those banks that willingly provided all of the necessary disclosures to participate in the report. All banks in the survey offered at least a basic checking account for customers. There were no banks that provided all of the best practices identified by Pew; however, 97% of them included at least one. The exceptions were those banks that ranked lowest and mentioned above. It’s interesting to note a sentence in the Pew study,
But even among the highest-performing banks, none performed very well in every category Pew evaluated.
There were also fourteen of the biggest banks that were not included because they did not provide their terms and fees either online or via email, which, for many, is problematic. They, according to Pew, “failed to provide the opportunity for consumers to review all of the relevant disclosures for checking accounts without visiting a branch.”
Big Banks Rank High
Two of the nation’s largest financial institutions ranked in the top five and include both Citibank and Bank of America. Others that ranked high included other well known and familiar brands: Ally Bank, Charles Schwab Bank, First Republic Bank, Citibank, and Bank of America.
Interestingly, Ally Bank achieved the highest number of best practices; however, it still failed to provide optimal policies across all three studied.
The best practices are defined as those that offered:
- Clear and concise disclosures on costs and terms and other banking policies.
- Efforts of reducing overdrafts, while also making efforts to educate customers in the process.
- “Meaningful” efforts of resolving problems
Solution is Complete Transparency
Susan Weinstock, director of the Safe Checking Project at Pew, stressed that the one surefire solution is found in complete transparency. She said better protection for consumers in clear language – in all of its communications with banks – is crucial. Whether it’s explaining overdraft options or credit card terms and conditions, this is an across the board method that would, frankly, solve many of the problems consumers experience.
Consumers should not have to hunt for this important information about their account…(it) should be like a nutrition label,
Another interesting dynamic that wasn’t delved into completely, but will play a role in how well banks emerge from the recession (long term) and their abilities to maintain customers is found policies for their online and mobile banking. Many already incorporate these conveniences and for millions of consumers, it’s already replaced cash. Many are opting for prepaid debit cards and they too will have to be factored in. Pew reports that security, convenience and other benefits of “mobile wallet” systems must take priority, but with safety for the consumer in mind. Widespread adoption of these technologies was predicted to be in place by 2020; in many areas, they already are.
Others who are generally positive about the future of mobile payments say that growth could slow with worries about the government’s intrusive admissions this week. Privacy fears are still big, and others the need for anonymous payments, demographic inertia, a lack of infrastructure to support adoption and resistance from those with a financial stake in the existing payment structure as potential stumbling blocks.
What are your thoughts? Do you agree with Pew’s findings or have you experienced different problems with your bank? Share your thoughts with us and let us know how you’d handle your bank if it were ranked lowest.