Tuesday, 3 January 2012

If you can't explain it simply, you don't understand it well enough - on clear bank account terms

A week or so ago the NYT published an editiorial "Clearer Bank Account Terms" in which it mentioned the need for more transparent and easier to understand terms in contracts that consumers conclude with banks (e.g. about a monthly fee when opening a checking account). In the US there is currently pressure being put by consumer organizations on the Consumer Financial Protection Bureau to require banks to disclose more, and more straightforward, information to their clients. One of the data that is being quoted is that of the Pew Charitable Trust that has recently found that banks may charge consumers with up to 54 different fees, e.g. for online transfers, making large deposits in coins or just providing customer assistance (see, e.g.: Consumers need a simple, easy-to-read disclosure box for checking accounts, or: Hidden Risks: The Case for Safe and Transparent Checking Accounts). It is no wonder that consumers get lost in all this information (contracts and all the documents surrounding them often have many, many pages - more than 100 pages - filled with information) and are not able to make informed transactional decisions (see our earlier post: Write as if you were writing it for your Grandma - tips on simplifying legal language). Another quoted study discovered that more people close their bank accounts due to unexplained fees than, e.g., because they lost their jobs. Unfortunately, when customers are closing bank accounts it creates problems not only for the bank but often for these customers, as well, e.g. by making their saving more abstract and less likely to happen.

The editorial encourages the CFPB to adopt and enforce uniform and transparent disclosure forms, that would allow consumers to avoid paying exorbitant fees, as well as make them better informed as to which services to choose. One may wonder whether such lack of disclosure would not be able to be perceived as a misleading commercial practice that is prohibited under the Unfair Commercial Practices Directive in the EU? (see also our earlier post: Unfair commercial practice ≠ unfair contract term ≠ void contract - AG's opinion in case C-453/10 Pereničová and Perenič)

As Jeff Sovern argues in response to this editorial, however, disclosure by itself could not fulfil the role of efficiently protecting consumers, since even the transparent conditions seem to be too much for consumers to understand. While it is true that the information load might be too big to be thoroughly analyzed by most consumers, a uniform disclosure form (e.g. the Chase form) will still put consumers in a better position by making comparisons of any data that is crucial to them easier.

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