Credit Union Disclosures Could Be Simpler Too, Pew Report Finds

Credit unions generally have shorter checking account disclosure documents and lower fees than big banks do, but they still have room for improvement, a new report finds.

The report from the Safe Checking in the Electronic Age project, part of the Pew Charitable Trusts, found that the median length of a checking disclosure among the largest credit unions (ranked by deposits) is 31 pages, less than half the length of the median disclosure at big banks. The range of disclosure length for credit unions was nine to 53 pages. (Disclosures are the lists of fees and terms that govern checking accounts). Credit unions are nonprofit financial institutions that typically offer membership to certain groups, although the largest ones often have very broad eligibility criteria.

But while their documents are shorter, the report found, credit union disclosures often don’t include information that would allow a customer to compare account fees, terms and conditions.

No credit unions made reference in their disclosures to amounts charged for “extended” overdraft fees, which are fees charged if an overdraft isn’t repaid within a specified amount of time. That’s probably because the credit unions don’t charge such fees, the report said, but there’s no way for a consumer to know that without contacting the credit union.

Susan Weinstock, director of the Safe Checking project, said that problem could be remedied by adoption of uniform disclosures. Pew advocates adoption of a simple box, or form, with basic information. (Some institutions, like the Eastman Credit Union, have already done so). “It reinforces the need for a disclosure box,” she said. “Sometimes they don’t disclose a fee, but is it because they don’t charge it? Or because they haven’t disclosed it?”

The median overdraft fee for credit unions is $25, the report found, compared with $35 for big banks.

Although all but one of the 12 credit unions offered an overdraft “transfer” plan — which lets customers choose to have shortages covered by a transfer of funds from a savings account or credit card — just five disclosed the transfer fee. The median charge per transfer was $5, less than half the median fee for the banks.

The Safe Checking project first analyzed bank disclosures in detail last year, and added credit unions to the report this year.

The Pew report found that credit unions, like banks, are also prone to using confusing terminology. For instance, the 12 credit unions used eight different names for what the report calls an “overdraft penalty fee,” or the fee charged if a customer spends more than is available in the account. Names include “optional overdraft protection service transaction,” “courtesy pay fee,” “overdraft fee,” “nonsufficient funds [NSF/OD] preauthorized withdrawal,” “bounce protection,” “overdrawn items,” “courtesy clearing” and “paid NSF.”

The different terms used can make it tough for consumers to compare accounts, the report found. One credit union, for instance, said an account had “no monthly service fee,” but, in fact, had a “minimum balance fee” that was assessed monthly, unless the customer’s balance was above a certain threshold. The fee appeared “functionally identical” to a monthly service fee, the report said, but used a different name that has the “potential to mislead customers.”

In an e-mailed statement, Bill Cheney, chief executive of the Credit Union National Association, a trade association, said the disclosures and explanations that credit unions must provide “to a large degree are dictated by regulatory requirements.” The association has had talks with officials at the Consumer Financial Protection Bureau about such issues, he said. “We believe greater simplicity and clarity will benefit consumers,” he said, “but it needs to be achieved without exacerbating an already heavy regulatory burden that keeps adding to credit unions’ compliance costs and detracts from their ability to channel savings back to their member-owners.”

He added that credit unions needed flexibility to price overdraft programs “reasonably and fairly.” The association is working to develop a set of “best practices” that it will share with credit unions, he said.

Like the big banks, the report found, the largest credit unions also can charge a range of extra fees that can bewilder customers. Pew identified 12 fees that were “common and central” to checking accounts at both banks and credit unions. But the median number of fees actually charged by banks was 26, with some banks charging as many as 48. The median number of additional service fees charged by credit unions, meanwhile, was 18, with some charging up to 29.

Pew supports the adoption of a simple, uniform checking disclosure for banks and credit unions, so consumers can compare fees and terms among accounts.

How well does your credit union disclose its checking account rules and fees?

Article source: http://bucks.blogs.nytimes.com/2012/06/12/credit-union-disclosures-could-be-simpler-too-pew-report-finds/