A 21-state survey of bank fees and disclosures by the nonprofit U.S. Public Interest Research Group returned a few obvious results, and one surprising recommendation: go with credit unions.
The study: compare and despair
PIRG surveyed 392 banks and credit unions in 21 states in-person, as well as in 12 states online, to determine how easily a consumer can compare banks’ fees, interest rates and other key indicators of a worthwhile credit card.
By law, every bank must publish a schedule of every fee it assesses, and distribute it to current or potential customers upon request. Of course, legislation is not the same as implementation. PIRG found that
- Less than 40% of the surveyed branches complied easily when a researcher asked for a fee schedule, as is his required under the Truth In Savings Act of 1991
- 55% of branches provided fee schedules after two or more requests
- Almost 25% of branches outright refused to comply
The PIRG study confirmed what we NerdWallet cynics have known for quite some time: the financial industry doesn’t go out of its way to make comparison shopping easy. Cards advertised as “low interest rate credit cards” often carry around hidden charges in the form of penalty APRs, cash advance or foreign exchange fees, or charges levied for not maintaining an adequate balance.
According to a law that celebrated its 22nd birthday last year, credit card companies must clearly list some of the most common fees and charges, including annual fees, all interest rates, and transaction fees. This list, known as the Schumer Box after Senator Charles Schumer (D-NY), is often buried deep in a card’s fine print and is sometimes skipped altogether. Playing “Find the Schumer Box” is a common (and frustrating) NerdWallet pastime.
Current regulation of banks’ fee disclosures is not sufficient
PIRG published some recommendations for the newly formed Consumer Financial Protection Bureau along with its study: instead of letting banks’ fees be scattered across a website, require banks to post the Schumer Box on the internet and to put their credit card information into an easily searchable format.
The group gave some suggestions to consumers as well, mostly common sense: shop around before choosing a credit card, review bank statements to catch any “gotcha” fees, and carefully read the terms and conditions before signing a credit card agreement.
But they had one suggestion no one expected: in the words of PIRG, “Bank at a credit union, not at a bank.”
The credit union advantage
PIRG noted that “average interest rates for loans are lower at credit unions than banks, and average rates for deposits are higher. That is a better deal both ways.” The study went on to list other advantages credit unions have over banks: more accessible free checking, fewer ATM fees, and better terms on everything from money market accounts to personal loans.
But more importantly, credit unions care about their customers – or members, as they’re called. We’ve consistently found credit unions to be not only more open about their interest rates and fees, but also to have fewer charges to begin with. For a bank, fees that consumers normally ignore are easy money. Credit unions, on the other hand, often outright waive these shrouded fees. Federal credit unions are barred from charging more than 18% interest, and many waive penalty APRs in favour of a flat $15-$25 late fee. Visa skims off 1% of every transaction made in a foreign currency; most cards tack on 2% to Visa’s charge, but credit unions will often swallow the cost themselves. Cash advance and balance transfer fees, too, are often considerably lower. Credit unions are particularly attractive to people with bad credit, since they benefit most from low interest rates.
Daniel Rubinov of Xceed Financal Credit Union says, “First and foremost, we’re a credit union. That means a couple of things. One, we’re member-owned and operated, giving you a personal say in how we do what we do. Two, we’re not-for-profit, so the revenue we do earn goes back to our members—A.K.A. you—in the form of lower rates and fewer fees.”
Credit unions serve the same function as banks. Says PIRG, “A credit union looks, smells and feels like a bank, and does most of what a bank does.” Just like a bank, a credit union tries to maximise shareholder value – but for a credit union, the customers are the shareholders. They’ve been serving their communities for almost a century. It’s about time someone noticed.
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