How Banks Sell Overdraft: Results of Overdraft Mystery Shopping in Four Key States

Written by Woodstock Institute, California Reinvestment Coalition, New Economy Project, Reinvestment Partners on August 1, 2014 - 10:53am

This report investigated whether large banks provide accurate and full information on overdraft products and services (“overdraft”); whether the information varied based on a person’s race, ethnicity, or gender, or based on neighborhood; and whether the information was provided without undue pressure or steering to costly products.

 

Four organizations—California Reinvestment Coalition of Oakland, CA; New Economy Project of New York, NY; Reinvestment Partners of Durham, NC; and Woodstock Institute of Chicago, IL—conducted 64 mystery shopping visits at 39 bank branches in Chicago, Durham, New York City, and Oakland. The four largest banks by deposit size in each city or state (California) were selected, including Bank of America, BB&T, BMO Harris, Capital One, Citibank, JPMorgan Chase, SunTrust, Union Bank, and Wells Fargo. (Some banks received shopper visits in more than one city.) Working in pairs, mystery shoppers visited branches of each of the four largest banks in each city four times — making two visits to branches in predominately white neighborhoods, and two visits to branches in predominately non-white neighborhoods.

The results of the mystery shopping show:

  • In all four cities, banks’ explanations of overdraft programs were highly inconsistent, and often unclear and incorrect. The inconsistent and erroneous information bank personnel provided to mystery shoppers raise concerns about banks’ training of staff and sales practices and suggest that banks may not be giving people the information they need to understand overdraft programs and make informed choices.
  • Bank employees often did not clearly or correctly explain how overdraft fees are triggered. The misinformation made it difficult or impossible for shoppers to understand the real costs of overdraft and make informed decisions.
  • Bank employees frequently did not explain the opt-in requirement for ATM and debit courtesy overdraft, and led people to believe that it was an automatic account feature, raising serious concerns about whether the large banks are complying with federal regulations.
  • In two of the cities, bank branches visited in predominantly non-white neighborhoods had limited staff availability and long wait times, in stark contrast to well-staffed branches in predominantly white neighborhoods. The poor service clearly affected the quality of assistance provided to customers in non-white neighborhoods.

The four organizations urge federal banking regulators and the CFPB to:

  • Prohibit overdraft fees on all ATM withdrawals and debit card transactions.
  • Limit the fees a bank may charge for overdrafts to an amount commensurate with the actual cost of the transaction to the bank and proportional to the actual amount overdrawn.
  • Prohibit banks from reordering transactions to maximize overdraft fees.
  • Prohibit banks from providing financial incentives to branch or bank employees for the sale of overdraft products to customers.
  • Create a uniform standard for how banks should verbally describe overdraft products and fees.
  • Require training of bank employees on the verbal explanation of overdraft standards and conduct periodic reviews of training and compliance.
  • Limit the number of times a financial institutions may impose any type of overdraft charges to once a month, or a maximum of six charges in a 12-month period, whichever comes first.