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Bill to make bank switching easier

By Claes Bell, CFA · Bankrate.com
Thursday, October 6, 2011
Posted: 2 pm ET

One of the most annoying aspects of the new wave of checking and debit card fees sweeping through the banking sector is the difficulty involved in switching checking accounts to avoid those fees. While that credit union or community bank across the street offering free checking may seem mighty enticing, actually following through with a checking account switch can be tricky.

That's not an accident. There are few things commercial banks prioritize higher than increasing "stickiness," or the tendency of even dissatisfied customers to stick around because moving would be too much of a pain.

That's a big reason why many offer, or used to offer, waivers of monthly maintenance fees in exchange for setting up direct deposit and automatic monthly bill pay. Those things not only tend to increase the average balance you carry in your account, but they also make it much more difficult to switch banks should you get bent out of shape about a fee or a bad customer service experience.

In addition to these tactics, some banks also employ less savory methods to increase stickiness, including tacking on fees for closing accounts and requiring accountholders to appear in person to cancel an account. A new bill recently introduced into the House of Representatives this week by Rep. Brad Miller (D-N.C.) seeks to address such tactics. Here are some of the highlights from the bill:

  • Provides consumers the right to close an account at no charge.
  • Provides consumers the right to close an account at any time, regardless of whether the balance is positive, zero, or negative.
  • Provides consumers the right to close an account in person, by phone, or by other remote means as may be prescribed by regulation.
  • Prohibits fees or charges from being assessed to an account after receiving a request to close an account.
  • Requires institutions to notify consumers of preauthorized and recurring debits that hit their account for 30 days after a qualified account is closed.
  • Requires institutions to remit the balance in a closed account to the customer’s new account electronically if the consumer chooses.
  • Provides that consumers must be given at least 30 days to remit payment for an account that is closed with a negative balance before the institution can initiate any collection activity, or reporting to a third party.
  • Provides that where an account is closed with a negative balance that is exclusively the result of overdraft or other fees assessed to the account by the depository institution, the institution may not report the account as delinquent to ChexSystems or any similar specialty consumer reporting service.

Given the anti-regulation bent in the House of Representatives right now, I'm not sure of the bill's chances, but I do think some of these rules are a good idea and may be adopted at some point by the CFPB, should that regulator ever get a confirmed director.

What do you think? Do we need a new law to make it easier for consumers to switch banks, or is it easy enough already?

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8 Comments
CynthFromSC
October 28, 2011 at 9:29 pm

After 20+ yrs with BoA, I'm glad to be done with them. But it sure wasn't easy to extricate myself from their tentacles. I'm well educated, proficient in online banking, and a young retiree with more discretionary time on my hands than most. And even so it was a very painful slog to switch to a local bank (that I actually researched using bankrate.com). So glad I did! It shouldn't be this hard to vote with your feet if the product or service you subscribe to doesn't meet your needs any more. Thank you, Rep. Miller for taking this on! Happy to read today that BoA is backing off their debit fees, that Chase and Wells Fargo have abandoned their pilot tests for debit card fees.

Steve
October 11, 2011 at 3:09 am

It's not the fact that it is difficult to switch, it is the problem like B of A not allowing consumers access to switch when they want to. You puny pundits on the far right no not get it. I am no lover of this administration but I am no lover of this corrupt banking , good ol boy system either. The consumer needs to be able to respond freely and swiftly in a free market system and the big banks wantvto control the consumer and hold them hostage. Do not be so quick to defend goliath and hold David hostage.

Dean
October 08, 2011 at 12:10 pm

Here is another example of government wasting time making up stupid bills. Our government is a joke. Can't even balance the budget.

Shannon
October 07, 2011 at 12:22 pm

Is appearing in person to close an account really an "unsavory tactic"? Seems like security to me.

Wolverine
October 07, 2011 at 7:10 am

What's so hard about switching accounts now?

If we really need governments to make this easier, than there is something REALLY wrong with us. I've done this before and it was simple.

I just waited for the day after my direct deposit to go to the other bank, open a new account and get all the information I need for the new direct deposit. Send to HR/SS/Whatever same day or next and good as done.

What's so hard about this?

Ash
October 06, 2011 at 7:43 pm

Oh, yes, by all means, let's further absolve consumers of understanding the terms of their accounts. And let's further try to regulate the banks -- who will only charge new and improved fees in response to the new rules. Many of you pundits were on board for the limit on interchange fees. You fixed those banks good, didn't you? And our grocery prices came down immediately to reflect the change, didn't they? Ha! Congratulations to Senator Durbin and his supporters, you killed free checking. Keep tinkering with the free market, you fools, and keep thinking that you can legislate a level playing field.