To save and invest, individuals need access to the banking system and credit. It is essential for financial independence.
In recent years the banking industry has changed dramatically. Banks have consolidated and are using technology to a much greater extent. Some banks provide services entirely online and have no brick-and-mortar locations.
Fees—banks increasingly rely on revenues from fees rather than from interest earnings. Between 1984 and 2015, their fee revenue more than doubled after adjusting for inflation. In total, banks earned half as much income from fees as they did from interest in 2015, while fees were only a tiny share of revenue in 1984. These fees include service fees on checking and savings accounts, overdraft fees, and charges for using automated teller machines (ATMs). Banks must get a consumer’s affirmative consent before they may charge overdraft fees for transactions at ATMs and points of purchase. Banks are still able to charge overdraft or insufficient funds fees for returned checks and electronic payments. Transactions that lead to overdrafts are often small, with a median debit card transaction amount of $24. Some banks also charge fees to use an in-person teller. This can create problems for some older Americans, particularly those living in less affluent neighborhoods. Such customers may need services from bank staff because of personal safety, disability status, literacy or language barriers, or a lack of familiarity with or trust in electronic banking. This increased reliance on fees has raised costs to the point that banking services are beyond the reach of some people with low and moderate incomes, including older adults. In response, across the country, numerous local and regional organizations have worked with financial institutions to ensure that safe and low-cost account options are available to all residents. As of 2019, 74 coalitions—cities, counties, or regions—have formed to promote these accounts as part of the BankOn National Initiative. In all of their branches, participating financial institutions offer a checking account or prepaid card that is certified as meeting minimal standards.
Garnishment—creditors and debt collectors sometimes garnish wages to collect money they claim they are owed. They also sometimes place a lien on assets or freeze bank accounts. Federal and some state laws or rules exempt certain funds from garnishment in most cases. This includes Social Security, Supplemental Security Income, and veterans’ benefits.
Electronic banking—most banking transactions that Americans make are conducted electronically. Consumers, regardless of age, seem to be increasingly comfortable using electronic banking. In a 2017 Federal Reserve survey, 80 percent of households gained access to a bank account online, and 51 percent did so through a mobile phone. More payments are made electronically than by check, and nearly six times as many payments are made by debit and credit cards than by check, according to the Federal Reserve Payments Study. The vast majority of the dollar value of payment transactions comes from electronic transfers. Check payments are second-largest, partly because checks are still used for larger payments, such as rent. Credit card payments are third, followed by debit cards. Currently, approximately 82 percent of all employees in the U.S. are paid by direct deposit, and approximately 99 percent of Social Security benefits are electronically deposited into a bank or credit union account, or onto a prepaid debit card. Federal law requires banks to document electronic payment activity, limit consumer liability for unauthorized transactions, and create procedures for error resolution.
Institutions are not required to provide periodic paper statements if account transaction information is available by telephone, electronically, or, upon the consumer’s request, in writing. Electronic payments are regulated by the 1978 Electronic Funds Transfer Act, and its implementing regulation, Regulation E. These rules governing bank accounts and prepaid cards. Gift cards that are not general-purpose cards also have their own regulations. The Credit Card Accountability Responsibility and Disclosure Act of 2009 states that gift cards cannot expire less than five years from the date that funds were first deposited on the card. It also requires disclosure information about fees and expiration dates to be printed on the gift card. In addition, dormancy, inactivity, and services fees cannot be charged on a gift card unless the card has not been used for at least one year, and no more than one such fee can be charged per month.
BANKING, CREDIT, AND DEBT: Policy
Providing basic-banking services
All depository institutions should be required to provide an adequate level of banking services to individuals, including customers with low incomes. This includes basic checking or savings accounts. BankOn programs—which promote access to safe, low-cost bank accounts--should be established and expanded.
Checking and savings accounts should be required to have the following features:
- a small minimum balance requirement,
- free transactions,
- reasonable charges, and
- a monthly easy-to-understand account statement.
To prevent fraud, institutions should not be required to cash a check unless it is made out to the person who presents it. And that person must be registered for check-cashing privileges with the institution.
Ensuring consumer protections in banking services
Financial institutions should be required to put in place consumer protections on fees and disclosures. This includes requiring fees to be fair, reasonable, and clearly disclosed. In addition:
- Transactions should be processed in the order in which they are received.
- Deposits should not be delayed. Holds placed on deposits should be minimized unless there is a high likelihood of fraud. Policymakers, regulators, and the financial industry should continue to develop faster payment mechanisms that reduce delays without increasing cost or compromising safety.
- Customers should be warned when an electronic transaction will result in a fee. They should be allowed to cancel the transaction in order to avoid the fee.
- Consumers should be given an opportunity to fix problems before facing additional charges or similar adverse actions. For example, if a bank account is overdrawn, consumers should be able to make a deposit or transfer in order to cure the overdraft before being charged a fee.
Congress should amend the Electronic Funds Transfer Act (EFTA) to apply its consumer protections to all electronically processed checks.
Overdraft fees should be defined as finance charges under the Truth in Lending Act.
Depository institutions should not be permitted to charge duplicative fees for the use of automated teller machines (ATMs).
Fees charged to customers without an account at a bank should be kept to a minimum.
Inactive accounts at financial institutions should not be charged excessive fees. Before they revert to the state:
- sufficient time should have passed,
- public notice should be given, and
- a reasonable effort should be made to find the account’s owners or heirs.
Customers should not be charged fees for the use of personalized tellers ATMs owned or leased by the depository institution.
Consumers should be able to compare factors such as fees and options easily. Policymakers should require full disclosure in plain language for checking, savings, and money market accounts, as well as all other financial products.
All significant terms and conditions should be featured in clear and complete language on advertisements, announcements, and solicitations for interest. This requirement should include window and outside signs.
In addition, consumers should retain access to banking services. Banking mergers should maintain a robust system of community banks and be in the public interest. Key factors in approving banking mergers should be the institutions’ compliance with state basic-banking laws. Regulators should ensure that neighborhoods retain adequate levels and quality of services.
Consumer accounts should be protected from unreasonable or illegal debt collection. Financial institutions should not garnish accounts that contain funds exempt from garnishment. Before processing requests to garnish or place a lien on an account, depository institutions should check to see whether accounts contain exempt funds. Financial institutions should not be allowed to assess overdraft or other fees when accounts primarily consisting of exempt funds are frozen.
Policymakers should ensure that technological advances in bank products and services include consumer safeguards to remain responsible. These include:
- security breach prevention measures,
- privacy protections,
- complete disclosures, and
- provisions addressing the loss or theft of card products.
Government benefit payments
Consumer protections should be added to government benefits payments, including those made by direct deposit and prepaid card.
The EFTA should be strengthened to ensure:
- financial institutions promptly notify consumers when direct-deposit payments are received;
- mechanisms for prompt, effective resolution of problems are provided; and
- consumers are more accurately informed about how and where to complain if they have problems with direct deposits.