U.S. HOUSE OF REPRESENTATIVES SUBCOMMITTEE ON FINANCIAL INSTITUTIONS SUPERVISION, REGULATION AND INSURANCE FULL DISCLOSURE OF BANKING CHARGES Statement of Ken McEldowney SAN FRANCISCO CONSUMER ACTION June 5, 1986 FULL DISCLOSURE OF BANKING CHARGES Thank you, Mr. Chairman. I am Ken McEldowney, Executive Director of San FranConsumer Action is a 15-year-old consumer advocacy organiza cisco Consumer Action. tion. We are a non-profit membership organization, with 2,000 members throughout California. Our primary concerns are the consumer services of the telecommunicaWe appreciate this opportunity to address tions and financial services industries. the problem of disclosure practices in the financial services industry. For more than a decade Consumer Action has specialized in the production of comparative pricing surveys. The philosophy behind consumer pricing surveys is remarkably simple. We believe that the optimum functioning of the marketplace depends upon fully informed consumers who carefully and knowledgeably weigh choices. But marketplaces have ways of veiling, even hiding, real costs: the goal of the shopping survey is to cut through marketing slogans and pretty images to present clear comparisons of costs and benefits. Consumer Action conducts surveys for two reasons. First, to provide consumers with the detailed information that they need to choose those accounts which will best meet their needs at the lowest cost. But second, and equally important, to gather the data we need to spot problems within the industry. Today I want to focus on one of the major problems that we have uncovered, that of wholly inadequate disclosure of fee and interest information on the part of banks and savings and loans. We annually release four major surveys of California banks and savings and loans. We have just published an eight-page tabloid listing detailed comparison pricing information on the savings instruments of more than 80 institutions. this year we will conduct a bank credit card fee and interest survey, followed by surveys of loans and checking and NOW accounts. Once a year we co-sponsor with the Consumer Federation of America a national banking survey which is conducted by CFA member groups tnroughout the country. Earlier this week the 1986 report was issued, Later -2 containing information on 225 banks and savings and loans in 18 states and the Dis trict of Columbia. Media coverage by The public response to our surveys has been overwhelming. newspapers, radio and television has been extensive throughout California. While the electronic media tend to focus on the broad conclusions that we have reached, the daily newspapers often go one step further and reprint some of the comparative price charts that we have developed. Consumers who want additional information send us self-addressed, stamped envelopes for copies of our survey results. Last year we received nearly 20,000 such requests. I would like to take a moment to discuss the significance of this public re sponse. As a grassroots consumer group we hear from many people who have problems in the marketplace. The two most common complaints we hear about the financial industry are that charges are too high and that it is very difficult to obtain facts about the costs and conditions of basic services. These are significant problems, because financial services have become an essential part of survival for everyone in today's society, including low income people. When consumers seek information from financial institutions they face a series of hurdles set up by an industry oblivious to the need for complete pre-purchase disclosure. How are consumers supposed to learn about the fees and conditions of the accounts they are comparing? Full disclosure of such information never appears in radio or TV ads and only rarely in newspaper ads. Brochures often ignore the potential for charges or merely indicate that unspecified fees may be assessed under certain conditions. Banking personnel often have a difficult time presenting clear When disclosures are made they are and accurate explanations of bank practices. often tied to unfamiliar and undefined terms. To compound matters, a lack of uniform terminology makes comparing accounts at different institutions difficult. Yet consumers' desire for such information, as measured by the response to pricing surveys by Consumer Action and other groups, is very strong. Today's consumer is increasingly aware of the need for full pre-purchase information, but when faced -3 with the barriers to disclosure now found throughout this industry, most people throw up their hands and settle on the nearest institution. For Until the advent of deregulation, consumers at least had a fighting chance. the most part, each institution offered a relatively small number of products and they were fairly comparable with those offered by other institutions. The products themselves were fairly simple. The However, with deregulation this has changed. Banks and savings and loans are attempting to distingish their products from those offered by the competition. result has been a proliferation of new accounts, each unique and each loaded with features and conditions. This development has not been accompanied by improvements in the delivery of pre-purchase information. Brochures and advertisements continue to be inadequate sources of information about the imposition of service fees and other key conditions. These failings might be forgivable if the industry had succeeded in improving the delivery of such facts at the branch level. Alas, it has been our experience that deregulation has compounded the difficulties experienced by branch personnel charged with explaining company policies. Our preference as surveyors is to obtain information by calling branches of banks and savings and loans, posing as consumers seeking to obtain loans or open accounts. This method has the advantage of providing us with the same information that is being provided to potential customers. But this method of gathering information has proven impossible with banking deregulation. Our experience has shown that, in many cases, branch personnel cannot even answer the most basic questions. For example, the question of what balance is required to avoid service charges on a regular savings account, or what that charge is, can be extremely difficult to have answered accurately. In one instance, which I hope was an extreme case, we called four branches of the same bank to find out whether it offered a Super NOW. Employees at two branches informed us that it did not have such an account; employees at the other two assured us that it offered the |