With increasing public outrage over unfair bank practices and rising fees, more consumers are considering switching to new financial institutions in search of better deals.
But consumers often face obstacles that can make switching banks a hassle, according to a new report by Consumers Union, the advocacy arm of Consumer Reports.
When a consumer decides to switch banks, the first thing he or she usually does is open a new account at another financial institution, which can take a few days or up to two weeks. Next, the consumer must transfer any direct deposits and automatic payments out of the old account into the new account. Then, the consumer must close the account at the old bank and move any remaining funds into the new account.
Consumers Union’s report identifies bank policies that may cause customers to stick with their financial institution even though they may not be happy with it. The report is based on a review of bank policies at the top 10 retail banks in the United States along with information gathered through a survey of the banks and a secret shopper investigation that tested the kind of problems consumers can run up against.
These obstacles that can get in the way of switching banks were found:
Time and money
Banks make every effort to ensnare customers in a web of products, which can make it more difficult for customers to move to a new institution. They also lock in customers by encouraging them to use certain services like automatic payments and direct deposits in order to avoid monthly fees. Re-routing automatic payments and deposits into a new account can take four to six weeks and can be a very intimidating and complicated process for some consumers. Customers who utilize automatic deposits and payments are far less likely to switch accounts.
Having enough money to maintain two accounts during the switching process also can pose a significant barrier. Because switching accounts can take up to six weeks, the only safe bet is to have enough money in both accounts to cover any potential automatic debits.
Fees to close accounts and transfer funds
Consumers may be confronted with fees to close accounts or to transfer money into new accounts. HSBC, PNC, and US Bank charge customers a $25 fee to close an account that has been open for fewer than 180 days, while BB&T and Citi charge a $25 fee if the account is closed within 90 days. It may also cost consumers to get their remaining balances deposited into their new account while trying to simultaneously close their old account.
None of the banks reviewed by Consumers Union will make a free, same-day electronic transfer of the customer’s money into a new account at another bank. All of the top 10 banks charge for wire transfers or certified checks. Fees range from $7 to $10 for certified checks and from $24 to $30 for a wire transfer.
Consumers are also at risk of penalty fees after they switch banks. The old bank may charge a fee for overdrafting an empty account or bouncing a check, and merchants and other billers may penalize consumers for late payments if they encounter delays while re-routing automatic payments.
Zombie accounts
Chase and Bank of America sometimes reopen old accounts after customers have closed them. Chase will reopen an account if the bank receives a deposit to the account, which could happen if a direct deposit isn’t re-routed in a timely manner as planned. Bank of America’s policy is to reopen accounts if any activity – credit or debit – hits the account. These “zombie accounts” can result in customers owing hundreds of dollars in penalty fees or even a monthly maintenance fee if a deposit falls below what’s needed to avoid such a fee.
The fine print
Consumers Union found that the account disclosures and websites for all of the top 10 banks failed to provide consumers with clear account closing policies. In addition, some customer service representatives gave conflicting advice to Consumers Union’s secret shoppers about the proper way to close an account.
Consumers Union is calling on Congress and the Consumer Financial Protection Bureau to consider policy changes to help consumers who want to switch banks. Banks should:
- Be required to bear the responsibility for transferring a customer’s automatic payments and deposits from the old account to the new account within 14 days.
- Provide same-day electronic fund transfers at no cost to consumers.
- Reduce check hold times so consumers can quickly access deposits in new accounts.
- Be prohibited from assessing unfair fees for closing accounts.
- Be prohibited from reopening accounts after consumers close them.
- Be required to provide clear and accessible account closing procedures.
In addition, Consumers Union recommends that bank regulators should examine the feasibility of portable bank account numbers to facilitate easier bank switching.
For consumer tips on switching banks, see Consumers Union’s "Move Your Money Checklist."
