According to a new report by Pew Charitable Trusts, the median length of the list of disclosures that you will be presented when you open a new checking account is 69 pages.
Financial institutions do not summarize important policies and fee information in a uniform, concise, and easy-to-understand format that allows customers to compare account terms and conditions. The median length of bank checking account disclosure statements has decreased, but is still cumbersome at 69 pages. For credit unions, the median length is 31 pages. Although shorter, credit union disclosures often do not include information that would allow a customer to compare account fees, terms, and conditions.
On a related note, the Consumer Financial Protection Bureau (CFPB) will be making its complaint database public today. The Washington Post indicates the importance of this data:
Complaints are the primary way that most consumers interact with the new agency. The CFPB said it has received more than 45,000 in the year since the bureau was launched. How it handles those complaints — and how much it makes public — has been a source of tension between the agency and financial industry groups.
I’m sure that the new Administration will be certain to reinstate every rule that the CFPB had in place under President Obama. I’m all for protection of consumers and their finance; it would be nice if the rules were limited to that.
One rule was that any firm that charged interest on overdue bills was defined as a financial institution, with all the same reporting requirements as Bank of America or Goldman Sachs. Large firms can usually afford to carry overdue amounts for a while because they have other sources of cash than operations. Small businesses do not, and this rule had a perverse effect. Local lawn care services couldn’t afford to carry a non-paying customer, so they charged interest on overdue accounts. This brought down the wrath of the federal government on these companies, which were faced with bad choices: stop charging interest and slowly bleed to death; spend more on complex financial reporting than they made; hope not to get caught; or sell out to a larger firm, usually at distress prices. The last one was the most common choice, causing consolidation in many small industries to defend themselves against the government. This reduced competition and caused competition to decline, a step typically followed by raising prices to the consumer. How this protects consumer finance is difficult to understand. I told local lawn care, basement repair, handyman services, etc, to impose a fixed penalty for late payment instead of charging interest. The penalties were always higher than the interest charges had been. More protection.
The other effect on small businesses was to define every derivative transaction as equally speculative. This is patently not true for invoice factoring, but it is only used by small businesses. Fees were imposed on invoice factoring, hurting small businesses but not large ones. Medical offices often factored invoices, but medical invoice factoring completely disappeared. This was part of what led to the disappearance of independent medical practices, although it was a gentler blow than the one delivered by new reporting requirements under the ACA. The net effect was to raise the price of operating capital to small businesses, giving large businesses an added advantage. Under the CFPB, for the first time since the great depression, small business starts declined year over year for multiple years, and the five-year failure rate of small businesses increased in concert.