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Banks’ ‘misleading marketing’

By Marcie Geffner ·
Monday, November 1, 2010
Posted: 9 am ET

Do banking customers opt in to overdraft protection on debit card charges because they want this high-priced service or because they’ve been tricked into saying yes by aggressive or deceptive marketing?

The Center for Responsible Lending, or CRL, a nonprofit organization that seeks to protect homeownership and family wealth by working to eliminate abusive financial practices, thinks marketing is more at work than choice.

The center is no stranger to controversy or (apparently) capital letters. In a recent statement, the center says -- quoting here -- that banks and credit unions:

• Do NOT tell customers they won't be charged a fee when the bank declines a debit card purchase that causes an overdraft. As a result, some consumers believe they will be penalized for overdrafts if they don't opt-in.
• Present customers with a FALSE CHOICE between no overdraft coverage or a high-fee overdraft program.
• Do NOT fully inform customers about lower-cost options such as a line of credit or a link to a savings account.
• Subject customers to relentless, MISLEADING MARKETING aimed at steering people into the highest-cost product.
• WRONGLY IMPLY that a debit card won't function correctly unless a customer opts in or that high-fee coverage has some advantage over lower-cost options.

On the one hand, it seems egregious for banks to market such a high-cost service so aggressively, especially when they've been forced at the point of law not to add on the service automatically without any say-so from the customer, who may or may not want it.

On the other hand, many businesses engage in marketing that doesn't tell all the bad along with the benefits. After all, the promotion of a product's best aspects is pretty much the whole point of marketing in the first place. And, it works. That's why companies, banks included, spend so much money on it.

So we have to ask: Are banking customers opting in because they're misinformed or they want the service? Are the banks' marketing efforts "aggressive and deceptive" or par for the course in advertising generally? Can customers make an informed choice or are they being bamboozled into overdraft protection services?

What say you?

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Debra James
November 08, 2010 at 8:00 pm

Although it may not be apparent, but bank employees are given commission on every product they get a customer to sign up for. The branches in a certain region may hold competitions against each other, and employee reviews may include sales performance. Not only are the bank employees trained to not understand when customers request a better option for themselves, there are too many incentives to disregard such requests; larger pay checks and job security.

Marcie Geffner
November 04, 2010 at 8:06 pm

Thanks for sharing such a perfectly illustrative story that raises troubling questions about these marketing practices. There's a line somewhere between reasonable marketing and deceptive practices, and it certainly seems to be quite often crossed.

Ben Towne
November 02, 2010 at 7:35 pm

Aggressive and deceptive, of course. Even after I had entered in my "opt out" preferences online, I continued to receive phone calls and communications trying to get me to opt in, from multiple banks. They make me think this is the low-fee option and that otherwise overdrafts would incur a greater penalty.

The other day I was in a PNC physical branch office and the guy in front of me was trying to set up an account for his adult son (also present; beaten into submission by this advertising & unable to understand the reality, even though he seemed like a relatively smart guy) to not have these overdraft fees. He wanted to set it up so that an overdraft would be "like a small loan" (link to line of credit) as his own account was set up. The teller refused to even talk about this option, pretending she did not understand what the guy was talking about (giving the impression that no option like that existed), even with the ability to look at the man's own account as an example.

They walked away defeated and I walked away wondering about what moral obligations I might've had to jump in with the correct banking term. After reading this I realize it was probably just aggressive marketing.