Bank Fees: Federal Banking Regulators Could Better Ensure That	 
Consumers Have Required Disclosure Documents Prior to Opening	 
Checking or Savings Accounts (31-JAN-08, GAO-08-281).		 
                                                                 
In 2006, consumers paid over $36 billion in fees associated with 
checking and savings accounts, raising questions about consumers'
awareness of their accounts' terms and conditions. GAO was asked 
to review (1) trends in the types and amounts of checking and	 
deposit account fees since 2000, (2) how federal banking	 
regulators address such fees in their oversight of depository	 
institutions, and (3) the extent that consumers are able to	 
obtain account terms and conditions and disclosures of fees upon 
request prior to opening an account. GAO analyzed fee data from  
private data vendors, publicly available financial data, and	 
information from federal regulators; reviewed federal laws and	 
regulations; and used direct observation techniques at depository
institutions nationwide.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-08-281 					        
    ACCNO:   A80336						        
  TITLE:     Bank Fees: Federal Banking Regulators Could Better Ensure
That Consumers Have Required Disclosure Documents Prior to	 
Opening Checking or Savings Accounts				 
     DATE:   01/31/2008 
  SUBJECT:   Accounts						 
	     Banking regulation 				 
	     Consumer protection				 
	     Data collection					 
	     Documentation					 
	     Federal reserve banks				 
	     Fees						 
	     Financial institutions				 
	     Information disclosure				 
	     National banks					 
	     Policy evaluation					 
	     Regulatory agencies				 
	     Reporting requirements				 
	     User fees						 
	     Policies and procedures				 

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Product.                                                 **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
******************************************************************
GAO-08-281

   

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately. 

Report to the Chairwoman, Subcommittee on Financial Institutions and 
Consumer Credit, Committee on Financial Services, House of 
Representatives: 

January 2008: 

Bank Fees: 

Federal Banking Regulators Could Better Ensure That Consumers Have 
Required Disclosure Documents Prior to Opening Checking or Savings 
Accounts: 

GAO-08-281: 

GAO Highlights: 

Highlights of GAO-08-281, a report to the Chairwoman, Subcommittee on 
Financial Institutions and Consumer Credit, Committee on Financial 
Services, House of Representatives. 

Why GAO Did This Study: 

In 2006, consumers paid over $36 billion in fees associated with 
checking and savings accounts, raising questions about consumersï¿½ 
awareness of their accountsï¿½ terms and conditions. GAO was asked to 
review (1) trends in the types and amounts of checking and deposit 
account fees since 2000, (2) how federal banking regulators address 
such fees in their oversight of depository institutions, and (3) the 
extent that consumers are able to obtain account terms and conditions 
and disclosures of fees upon request prior to opening an account. GAO 
analyzed fee data from private data vendors, publicly available 
financial data, and information from federal regulators; reviewed 
federal laws and regulations; and used direct observation techniques at 
depository institutions nationwide. 

What GAO Found: 

Data from private vendors indicate that average fees for insufficient 
funds, overdrafts, returns of deposited items, and stop payment orders 
have risen by 10 percent or more since 2000, while others, such as 
monthly account maintenance fees, have declined. During this period, 
the portion of depository institutions income derived from noninterest 
sourcesï¿½including fees on savings and checking accountsï¿½varied but 
increased overall from 24 percent to 27 percent. Changes in both 
consumer behavior, such as making more payments electronically, and 
practices of depository institutions are likely influencing trends in 
fees, but their exact effects are unknown. 

Federal banking regulators address fees associated with checking and 
savings accounts primarily by examining depository institutionsï¿½ 
compliance with requirements, under the Truth in Savings Act (TISA) and 
its implementing regulations, to disclose fee information so that 
consumers can compare institutions. They also review customer 
complaints but do not assess whether fees are reasonable. The 
regulators received relatively fewer consumer complaints about fees and 
related disclosuresï¿½less than 5 percent of all complaints from 2002 to 
2006ï¿½than about other bank products. During the same period, they cited 
1,674 violations of fee-related disclosure regulationsï¿½about 335 
annually among the 17,000 institutions they oversee. 

GAOï¿½s visits to 185 branches of 154 depository institutions suggest 
that, despite the disclosure requirements, consumers may find it 
difficult to obtain information about checking and savings account 
fees. GAO staff posing as customers were unable to obtain detailed fee 
information and account terms and conditions at over one-fifth of 
visited branches and also could not find this information on many 
institutionsï¿½ Web sites (see fig.) Federal regulators examine 
institutionsï¿½ written policies, procedures, and documents but do not 
determine whether consumers actually receive disclosure documents. 
While consumers may consider factors besides costs when shopping for 
accounts, an inability to obtain information about terms, conditions, 
and fees hinders their ability to compare institutions. 

Figure: Percent of Depository Institution Branches and Web Sites at 
Which GAO Could Not Obtain Comprehensive Lists of Fees and Terms and 
Conditions: 

[See PDF for image] 

This figure is a horizontal bar graph, depicting the following 
approximate data: 

Comprehensive fee information, Institution Web site: 50%; Comprehensive 
fee information, Branch visit: 22%. 

Account terms and conditions, Institution Web site: 65%; Account terms 
and conditions, Branch visit: 33%. 

Source: GAO. 

[End of figure] 

What GAO Recommends: 

To help ensure that consumers can make meaningful comparisons among 
depository institutions as intended by TISA, GAO recommends that the 
federal banking regulators assess the extent to which customers receive 
disclosures on fees, and account terms and conditions prior to opening 
an account and incorporate into their oversight, as needed, steps to 
assure that disclosures continue to be made available. The federal 
banking regulators agreed with GAOï¿½s recommendation and outlined 
responsive actions, including working on an interagency basis to revise 
Regulation DD examination procedures. 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-281]. For more information, contact David 
G. Wood at (202) 512-8678 or [email protected]. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

Some Fees on Checking and Savings Accounts Increased between 2000 and 
2007, and Institutions' Reported Increasing Revenues from Fees: 

Regulators Focus on Depository Institutions' Compliance with Federal 
Disclosure Requirements: 

Despite Federal Regulations and Compliance Examinations, We Experienced 
Difficulty Obtaining Fee Information: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendixes: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Issues with Providing Consumers Real-Time Account 
Information at Point-of-Sale Terminals and ATMs When Using a Debit 
Card: 

Appendix III: Analyses of Select Bank Fees Data: 

Appendix IV: Resolution of Complaints Related to Fees and Disclosures 
Associated with Checking and Savings Accounts: 

Appendix V: Comments from the Federal Deposit Insurance Corporation: 

Appendix VI: Comments from the Board of Governors of the Federal 
Reserve System: 

Appendix VII: Comments from the National Credit Union Administration: 

Appendix VIII: Comments from Office of the Comptroller of the Currency: 

Appendix IX: Comments from the Office of Thrift Supervision: 

Appendix X: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Selected Periodic and Special Service Fees Associated with a 
Checking or Savings Account: 

Table 2: Number of Regulation DD and E Disclosure-Related Violations 
Identified by Federal Banking Regulators from 2002-2006: 

Table 3: Number of Institutions Surveyed by Moebs Services, 2000-2007: 

Table 4: Definition of Institution Size Categories: 

Table 5: Number of Institutions for Which Informa Research Services 
Collected Data, 2000-2006: 

Table 6: Issues Raised by Options for Warning Consumers That They May 
Incur an Overdraft When Using a Debit Card at a Point-of-Sale Terminal 
or ATM: 

Table 7: Average Fees, All Institutions, 2000-2007: 

Table 8: Average Fees, All Institutions, 2000-2006: 

Figures: 

Figure 1: Possible Outcomes of an Insufficient Funds Transaction: 

Figure 2: Average Insufficient Funds, Overdraft, Return of Deposited 
Item, and Stop Payment Order Fees, All Institutions, 2000-2007: 

Figure 3: Banks', Thrifts', and Credit Unions' Interest Income and 
Noninterest Income as a Percentage of Total Income and the Federal 
Funds Rate, 2000-2006: 

Figure 4: Banks' and Thrifts' SCDA and Credit Unions' Fee Income as a 
Percentage of Total Income, 2000-2006: 

Figure 5: Complaints Related to Four Major Products for All Federal 
Regulators: 

Figure 6: Percentage of Depository Institution Branches and Web Sites 
We Visited That Did Not Provide a Comprehensive List of Fees and Terms 
and Conditions: 

Figure 7: Path of a Typical PIN-Based Debit Card Transaction: 

Figure 8: Path of a Typical Signature-Based Debit Card Transaction: 

Figure 9: Path of a Typical Debit Card Transaction at an ATM: 

Figure 10: Complaint Resolutions Made by Federal Regulators: 

Abbreviations: 

ACH: Automated Clearing House: 

ATM : automated teller machine: 

CAESAR: Complaint Analysis Evaluation System and Reports: 

CCS: Consumer Complaint System: 

EFT: electronic funds transfer: 

FDIC: Federal Deposit Insurance Corporation: 

NCUA: National Credit Union Administration: 

OCC: Office of the Comptroller of the Currency: 

OTS: Office of Thrift Supervision: 

PIN: personal identification number: 

PIRG: U.S. Public Interest Research Group: 

SCDA: service charges on deposit accounts: 

STARS: Specialized Tracking and Reporting System: 

TFR: Thrift Financial Reports: 

TISA : Truth in Savings Act: 

[End of section] 

United States Government Accountability Office: 
Washington, D.C. 20548: 

January 31, 2008: 

The Honorable Carolyn B. Maloney: 
Chairwoman: 
Subcommittee on Financial Institutions and Consumer Credit: 
Committee on Financial Services: 
House of Representatives: 

Dear Chairwoman Maloney: 

In 2006, consumers paid over $36 billion in various fees associated 
with checking and savings accounts at depository institutions--banks, 
thrifts, and credit unions.[Footnote 1] Members of Congress, consumer 
groups, and others have raised a variety of concerns about these fees-
-for example, whether depository institutions have increased fees as a 
source of revenues and if so, the impact of this trend on consumers. 
Additionally, some have questioned how regulators address fee practices 
in their oversight of depository institutions and whether consumers, 
prior to opening a checking or savings account, are able to obtain 
information on fees and depository institution practices that influence 
when fees are assessed. 

The Board of Governors of the Federal Reserve System (Federal Reserve) 
has established regulations for checking and savings accounts that 
require depository institutions to disclose certain information about 
the fees they charge. Specifically, Regulation DD, which implements the 
Truth in Savings Act (TISA), requires depository institutions to 
disclose (among other things) the amount of any fee that may be imposed 
in connection with an account and the conditions under which such fees 
are imposed.[Footnote 2] Regulation E--the other primary federal 
regulation governing checking and savings account fees--implements the 
Electronic Fund Transfer Act and establishes the basic rights, 
liabilities, and responsibilities of consumers who use electronic fund 
transfer services and of financial institutions that offer these 
services.[Footnote 3] To ensure compliance with these and other 
relevant laws and regulations, banks, thrifts, and credit unions are 
subject to oversight at the federal and state level.[Footnote 4] This 
oversight includes on-site examinations and other steps to ensure 
compliance with the laws and regulations. In 2005, partly in response 
to concerns about the marketing, implementation, and fees of overdraft 
protection programs being offered by depository institutions, the OCC, 
Federal Reserve, FDIC and NCUA jointly and the OTS separately issued 
guidance (interagency guidance) outlining "best practices" that 
address, among other things, communicating the features of these 
programs to customers.[Footnote 5] 

You requested that we examine a number of issues related to the fees 
that consumers pay on their checking and savings accounts. This report 
discusses (1) the trends in the types and amounts of fees associated 
with checking and deposit accounts since 2000 and available information 
on the characteristics of consumers that incur fees; (2) ways that 
federal and selected state banking regulators address checking and 
deposit account fees in their oversight of depository institutions; and 
(3) the extent to which consumers are able to obtain information on 
account terms and conditions and on fees, including information about 
specific transactions and bank practices that determine when such fees 
are assessed, upon request prior to opening an account. In addition, 
appendix II of the report presents information on issues related to 
providing real-time account information at point-of-sale terminals and 
automated teller machines (ATM) that could help consumers avoid certain 
fees. 

For the first objective, we engaged the services of a private sector 
firm--Moebs Services, Inc.--to obtain data on selected fees associated 
with checking and savings accounts from 2000 to 2007 and similar data 
from another private sector firm--Informa Research Services, Inc.--from 
2000 to 2006. We interviewed representatives of these two firms to 
understand their methodology for collecting the data and ensuring its 
integrity. In addition, we conducted reasonableness checks on the data 
we received to identify any missing, erroneous, or outlying data and 
concluded that the data were sufficiently reliable for use in our 
report. To determine the role that these fees have played in depository 
institutions' revenues, we also obtained and analyzed quarterly 
financial data submitted by federally insured banks, thrifts, and 
credit unions and maintained by FDIC and NCUA. In our past work, we 
have found the quarterly financial data maintained by FDIC and NCUA to 
be sufficiently reliable for the purposes of our reports. We also 
reviewed the literature for studies or information on the 
characteristics of consumers who might be likely to incur such fees and 
interviewed representatives of the federal banking regulators about 
this issue. To determine how federal and selected state banking 
regulators address fees associated with checking and deposit accounts 
as part of their oversight of depository institutions, we obtained and 
reviewed examination manuals and guidance used by the five federal 
banking regulators and state regulators in six states.[Footnote 6] We 
obtained and reviewed a sample of 25 reports on examinations conducted 
during 2006 to identify how these regulators carried out examinations 
for compliance with Regulations DD and E.[Footnote 7] In addition, we 
obtained data from each of the federal banking regulators on violations 
they cited for institutions' noncompliance with Regulation DD and 
Regulation E disclosure-related provisions, as well as enforcement 
actions that each regulator took against institutions from 2002 to 
2006. We also obtained annual data on consumer complaints concerning 
checking and savings accounts at depository institutions--particularly 
complaints related to fees and disclosures--as well as complaints for 
other major products (credit cards and mortgage loans) referred to 
these regulators from 2002 to 2006. To assess the reliability of data 
from the five federal banking regulators, we reviewed relevant 
documentation and interviewed agency officials. Finally, we interviewed 
officials from each of the federal banking regulators and from six 
state banking regulators about these issues. 

To assess the extent to which consumers are able to obtain account 
terms and conditions and disclosures of fees, we used direct 
observation techniques and reviewed studies and reports by government 
agencies, consumer groups, and other researchers. We also reviewed 
relevant federal laws, regulations, and guidance issued by the federal 
banking regulators. For direct observation, GAO employees posed as 
consumers shopping for checking and savings accounts and visited 185 
branches of 154 banks, thrifts, and credit unions throughout the nation 
to request documents on the fees associated with basic checking and 
savings accounts.[Footnote 8] We selected these institutions to ensure 
a mix of institution type (bank, thrift, and credit union) and size; 

however, the results cannot be generalized to all institutions. These 
employees also reviewed information from the institutions' Web sites. 
To obtain information on issues related to providing consumers with 
real-time account information during debit card transactions at point- 
of-sale terminals and automated teller machines, we reviewed available 
literature from the Federal Reserve and other sources and met with 
officials from depository institutions, card associations, third-party 
processors, and trade organizations. 

We conducted this performance audit from January 2007 to January 2008, 
in accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe that 
the evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. Appendix I explains our 
objectives, scope, and methodology in greater detail. 

Results in Brief: 

According to data from private vendors, average fees for some checking 
and savings account features--such as overdrafts, insufficient funds 
(instances in which an institution denies a transaction that would 
result in an overdraft but charges a fee), returns of deposited items, 
and stop payment orders--have generally risen since 2000, while others-
-for example, monthly account maintenance fees--have generally 
declined. For example, the average overdraft fee increased by about 11 
percent (after inflation adjustment) between 2000 and 2007 among 
institutions surveyed by Moebs Services. The data also indicate some 
variation in fees by type and size of institution, with banks and 
thrifts charging higher fees on average than credit unions, and larger 
institutions charging more on average than midsize and smaller 
institutions. During this same period, the portion of income that 
depository institutions derived from noninterest sources--including, 
but not limited to, fees on savings and checking accounts--varied, but 
generally increased from about 24 percent to 27 percent of income from 
all sources. Changes in both consumer behavior and the practices of 
depository institutions are likely influencing these trends in fees. 
For example, consumers are increasingly using electronic forms of 
payment that result in rapid or even immediate debits--a development 
that may mean an increasing number of charges for insufficient funds or 
overdrafts. Additionally, many depository institutions have automated 
overdraft protection programs that have been increasingly marketed to 
customers. However, we were not able to analyze the demographic 
characteristics of customers that incur bank fees because doing so 
would require transaction-level data for all account holders--data that 
are not publicly available. FDIC is currently reviewing the overdraft 
programs of some of the banks it supervises, including reviewing 
transaction-level data to help determine the characteristics of 
consumers who incur fees related to overdrafts, but its study will not 
be completed until late 2008. 

Federal banking regulators address fees associated with checking and 
savings accounts primarily by examining depository institutions' 
compliance with statutory and regulatory disclosure requirements and 
reviewing customer complaints. However, regulators generally do not 
address the reasonableness of fees assessed. The examination procedures 
for financial institutions' compliance with Regulations DD and E, which 
are similar across the five federal banking regulators, consist largely 
of a review of an institution's written policies and procedures and a 
sample of disclosure documents. Since 2005, NCUA has included 
examination procedures specifically addressing institutions' adherence 
to the 2005 interagency guidance concerning overdraft protection 
products and, in September 2007, all of the regulators revised their 
Regulation DD examination procedures to include reviews of the 
disclosures associated with such products offered by institutions that 
advertise them. While regulators received a large number of checking 
account complaints, they received relatively fewer complaints 
specifically concerning fees and related disclosures--less than 5 
percent of all complaints received from 2002 to 2006. Further, the 
regulators reported a total of 1,674 instances in which they cited an 
institution for violation of the fee-related disclosure sections of 
Regulations DD and E from 2002 to 2006 (an average of about 335 
annually among the nearly 17,000 institutions these regulators 
supervise). According to the regulators, the regulators took only two 
formal enforcement actions during this period related to these 
violations because most institutions took corrective actions during the 
course of the examination or shortly thereafter. The six selected state 
regulators we spoke with told us that their primary focus is on safety 
and soundness issues and compliance with state laws and regulations. 
Four of the six state regulators told us that they assess compliance 
with federal regulations such as Regulations DD and E. Like the federal 
regulators, the states reported receiving relatively few consumer 
complaints associated with checking and savings account fees and 
disclosures. 

Our visits to 185 branches of depository institutions nationwide 
suggest that consumers shopping for accounts may find it difficult to 
obtain account terms and conditions and disclosures of fees upon 
request prior to opening an account. Similarly, our review of the Web 
sites of the banks, thrifts, and credit unions we visited suggests that 
this information may also not be readily available on the Internet. We 
were unable to obtain, upon request, a comprehensive list of all 
checking and savings account fees at 40 of the branches (22 percent) 
that we visited. Similarly, we were unable to obtain the account terms 
and conditions, including information on when deposited funds became 
available and how overdrafts were handled, for checking and savings 
accounts at 61 of the branches (33 percent). The results are consistent 
with those reported by a consumer group that conducted a similar 
exercise in 2001.[Footnote 9] While the revised Regulation DD 
examination procedures call specifically for reviewing disclosures 
associated with overdraft protection products, the federal banking 
regulators do not have procedures to assess whether potential customers 
actually receive these or other disclosures. Consumers may consider 
convenience or other factors besides costs when shopping for checking 
or savings accounts, but this inability to obtain information about 
fees and the conditions under which fees are assessed upon request 
prior to opening a checking and savings account hinders their ability 
to make meaningful comparisons among institutions. 

This report contains recommendations to the five federal banking 
regulators to incorporate into their supervision of financial 
institutions a means of ensuring that fee and other disclosure 
documents are made available to consumers upon request before opening 
an account, as intended by TISA and Regulation DD. 

We requested and received written comments on a draft of this report 
from FDIC, the Federal Reserve, NCUA, OCC, and OTS that are presented 
in appendixes V through IX. In their written responses, all five 
banking regulators indicated agreement with our report and stated that 
they will be taking action in response to our recommendation. For 
example, OCC stated that it would incorporate steps, as needed, into 
its oversight of institutions' compliance with TISA to assure that 
disclosures continue to be made available. The Federal Reserve and NCUA 
specifically mentioned the need to revise, improve, or strengthen the 
current interagency Regulation DD examination procedures. All five 
agencies indicated that they plan to address this issue on an 
interagency basis. We also received technical comments from FDIC and 
the Federal Reserve, which we have incorporated in this report as 
appropriate. 

Background: 

Depository institutions--banks, thrifts, and credit unions--have 
attained a unique and central role in U.S. financial markets through 
their deposit-taking, lending, and other activities. Individuals have 
traditionally placed a substantial amount of their savings in federally 
insured depository institutions. In addition, the ability to accept 
deposits transferable by checks and other means has allowed depository 
institutions to become principal agents or middlemen in many financial 
transactions and in the nation's payment system. Depository 
institutions typically offer a variety of savings and checking 
accounts, such as ordinary savings, certificates of deposits, interest- 
bearing checking, and noninterest-bearing checking accounts. Also, the 
same institutions may offer credit cards, home equity lines of credit, 
real estate mortgage loans, mutual funds, and other financial products. 

In the United States, regulation of depository institutions depends on 
the type of charter the institution chooses.[Footnote 10] The various 
types of charters can be obtained at the state or national level and 
cover: (1) commercial banks, which originally focused on the banking 
needs of businesses but over time broadened their services; (2) 
thrifts, which include savings banks, savings associations, and savings 
and loans and which were originally created to serve the needs-- 
particularly the mortgage needs--of those not served by commercial 
banks; and (3) credit unions, which are member-owned cooperatives run 
by member-elected boards with a historic emphasis on serving people of 
modest means. 

All depository institutions have a primary federal regulator if their 
deposits are federally insured. State regulators participate in the 
regulation of institutions with state charters. Specifically, the five 
federal banking regulators charter and oversee the following types of 
depository institutions: 

* OCC charters and supervises national banks. As of December 30, 2006, 
there were 1,715 commercial banks with national bank charters. These 
banks held the dominant share of bank assets, about $6.8 trillion. 

* The Federal Reserve serves as the regulator for state-chartered banks 
that opt to be members of the Federal Reserve System and the primary 
federal regulator of bank holding companies, including financial 
holding companies.[Footnote 11] As of December 30, 2006, the Federal 
Reserve supervised 902 state member banks with total assets of $1.4 
trillion. 

* FDIC supervises all other state-chartered commercial banks with 
federally insured deposits, as well as federally insured state savings 
banks. As of December 30, 2006, there were 4,785 state-chartered banks 
and 435 state-chartered savings banks with $1.8 trillion and $306 
billion in total assets, respectively. In addition, FDIC has backup 
examination authority for federally insured banks and savings 
institutions of which it is not the primary regulator. 

* OTS charters and supervises federally chartered savings associations 
and serves as the primary federal regulator for state-chartered savings 
associations and their holding companies. As of December 30, 2006, OTS 
supervised 761 federally chartered and 84 state chartered thrifts with 
combined assets of $1.4 trillion. 

* NCUA charters, supervises, and insures federally chartered credit 
unions and is the primary federal regulator for federally insured state 
chartered credit unions. As of December 30, 2006, NCUA supervised 5,189 
federally chartered and insured 3,173 state chartered credit unions 
with combined assets of $710 billion. 

These federal regulators conduct on-site examinations and off-site 
monitoring to assess institutions' financial condition and compliance 
with federal banking and consumer laws. Additionally, as part of their 
oversight the regulators issue regulations, take enforcement actions, 
and close failed institutions. 

Regulation DD, which implements TISA, became effective with mandatory 
compliance in June 1993. The purpose of the act and its implementing 
regulations is to enable consumers to make informed decisions about 
their accounts at depository institutions through the use of uniform 
disclosure documents. These disclosure documents are intended to help 
consumers "comparison shop" by providing information about fees, annual 
percentage yields, interest rates, and other terms for deposit 
accounts. The regulation is supplemented by "staff commentary," which 
contains official Federal Reserve staff interpretations of Regulation 
DD. Since the initial implementation date for Regulation DD, several 
amendments have been made to the regulation and the corresponding staff 
commentary. For example, the Federal Reserve made changes to Regulation 
DD, effective July 1, 2006, to address concerns about the uniformity 
and adequacy of information provided to consumers when they overdraw 
their deposit accounts.[Footnote 12] Credit unions are governed by a 
substantially similar regulation issued by NCUA.[Footnote 13] 

Regulation E, which implements the Electronic Fund Transfer Act, became 
effective in May 1980. The primary objective of the act and Regulation 
E is the protection of individual consumers engaging in electronic 
funds transfers (EFT). Regulation E provides a basic framework that 
establishes the rights, liabilities, and responsibilities of 
participants in electronic fund transfer systems such as ATM transfers, 
telephone bill-payment services, point-of-sale terminal transfers in 
stores, and preauthorized transfers from or to consumer's bank accounts 
(such as direct deposit and Social Security payments). The term 
"electronic fund transfer" generally refers to a transaction initiated 
through an electronic terminal, telephone, computer, or magnetic tape 
that instructs a financial institution either to credit or to debit a 
consumer's asset account. Regulation E requires financial institutions 
to provide consumers with initial disclosures of the terms and 
conditions of EFT services. The regulation allows financial 
institutions to combine the disclosure information required by the 
regulation with that required by other laws such as TISA as long as the 
information is clear and understandable and is available in a written 
form that consumers can keep. 

Paying or honoring customers' occasional or inadvertent overdrafts of 
their demand deposit accounts has long been an established practice at 
depository institutions. As shown in figure 1, depository institutions 
have four options when a customer attempts to withdraw or access funds 
from an account that does not have enough money in it to cover the 
transaction, and fees can be assessed for each of these options. The 
institution can (1) cover the amount of the overdraft by tapping a 
linked account (savings, money market, or credit card) established by 
the customer; (2) charge the overdraft to a linked line of credit; (3) 
approve the transaction (if electronic) or honor the customer's check 
by providing an ad hoc or "courtesy" overdraft; or (4) deny the 
transaction or decline to honor the customer's check. The first two 
options require that customers have created and linked to the primary 
checking account one or more other accounts or a line of credit in 
order to avoid overdrafts. The depository institution typically waives 
fees or may charge a small fee for transferring money into the primary 
account (a transfer fee). Depository institutions typically charge the 
same amount for a courtesy overdraft (an overdraft fee) as they do for 
denying a transaction for insufficient funds (an insufficient funds 
fee). 

Figure 1: Possible Outcomes of an Insufficient Funds Transaction: 

[See PDF for image] 

This figure is a chart that depicts the following information: 

Institutions' options: Overdraft to a linked account: Institution pays 
overdraft by transferring funds from customerï¿½s linked account through 
an automated process (overdrawn account received funds from linked 
savings account, money market account, or credit card); 
Customer actively signs up for option: [Check]; 
Type of fee: A per-transaction overdraft transfer fee[A]. 

Institutions' options: Overdraft to a line of credit: Institution pays 
overdraft by charging customerï¿½s linked line of credit through an 
automated process (overdrawn account receives funds from line of 
credit; credit charged for amount of overdraft); 
Customer actively signs up for option: [Check]; 
Type of fee: A per-transaction overdraft transfer fee[B]. 

Institutions' options: Ad hoc overdraft: Institutionï¿½s decision is 
discretionary and may be manual or automated, but an overdraft program 
is not publicized to the institutionï¿½s customers (overdrawn account 
receives funds from the bank); 
Customer actively signs up for option: [Empty]; 
Type of fee: A per-transaction overdraft fee. 

Institutions' options: ï¿½Courtesyï¿½ overdraft: Institution's decision is 
discretionary and may be manual or automated, but the institution 
publicizes or promotes an overdraft program to its customers. The 
institution also typically discloses the dollar limit for covering 
overdrafts (overdrawn account receives funds from the bank); 
Customer actively signs up for option: [Empty]; 
Type of fee: A per-transaction overdraft fee. 

Institutions' options: Transaction denied[C]: Institution does not 
honor transaction, usually a check.
Customer actively signs up for option: [Empty]; 
Type of fee: A per-transaction insufficient funds fee. 

Source: GAO. 

[A] Some banks may charge only one transfer fee per day. Also, if 
consumers link overdrafts to credit cards, then they may be subject to 
finance charges in addition to a transfer fee. 

[B] The consumer may be subject to finance charges in addition to a 
transfer fee. 

[C] If an electronic transaction is denied at the point of sale because 
of insufficient funds, the consumer typically is not charged an 
insufficient funds fee because the transaction is not completed. For 
payments involving checks, merchants may also charge a returned check 
fee in addition to what is charged by the bank. 

[End of figure] 

In addition to fees associated with insufficient funds transactions, 
institutions may charge a number of other fees for checking and savings 
account services and transactions. As shown in table 1, these fees 
include periodic service charges associated with these accounts and 
special service fees assessed on a per-transaction basis. 

Table 1: Selected Periodic and Special Service Fees Associated with a 
Checking or Savings Account: 

Fee: Account maintenance; 
Applicability: Assessed typically on a monthly basis for maintaining a 
checking or savings account. Depository institutions frequently waive 
routine service fees for customers who maintain a monthly minimum 
balance or meet other requirements, such as for direct deposits of 
paychecks. 

Fee: Electronic banking or bill payment services; 
Applicability: Assessed typically on a monthly basis for customers who 
opt for electronic banking or bill payment services. 

Fee: ATM surcharge; 
Applicability: Assessed by a depository institution for a nonaccount 
holder's use of its ATM. 

Fee: Foreign ATM; 
Applicability: Assessed on a transaction basis by a depository 
intuition for an account-holder's use of another depository 
institution's ATM. 

Fee: Returns of deposited items; 
Applicability: Assessed on a transaction basis by a depository 
institution when its account holder deposits a check that is then 
returned unpaid to the originating institution (for example, because of 
insufficient funds). 

Fee: Stop payment order; 
Applicability: Assessed by a depository institution for processing an 
account holder's order to withhold payment on a check already written. 

Source: GAO. 

[End of table] 

Some Fees on Checking and Savings Accounts Increased between 2000 and 
2007, and Institutions' Reported Increasing Revenues from Fees: 

Our analysis of data from private vendors showed that a number of bank 
fees--notably charges for insufficient funds and overdraft 
transactions--have generally increased since 2000, while others have 
decreased.[Footnote 14] In general, banks and thrifts charged higher 
fees than credit unions for checking and savings account services, and 
larger institutions charged more than smaller institutions. During this 
same period, the portion of depository institutions revenues derived 
from noninterest sources--including, but not limited to, fees on 
savings and checking accounts--increased somewhat. Changes in both 
consumer behavior and practices of depository institutions are likely 
influencing trends in fees, but limited data exist to demonstrate the 
effect of specific factors. FDIC is currently conducting a special 
study of the overdraft programs that should provide important insights 
on how these programs operate, as well as information on 
characteristics of customers who pay overdraft bank fees. 

Since 2000, Checking and Savings Account Fees Have Increased for Some 
Transactions and Services and Declined for Others: 

Data we obtained from vendors--based on annual surveys of hundreds of 
banks, thrifts, and credit unions on selected banking fees indicated 
that some checking and savings account fee amounts generally increased 
between 2000 and 2007, while a few fell, notably monthly maintenance 
fees.[Footnote 15] For example, as shown in figure 2, average 
insufficient funds and overdraft fees have increased by about 11 
percent, stop payment order fees by 17 percent, and return deposited 
item fees by 49 percent since 2000.[Footnote 16] 

Figure 2: Average Insufficient Funds, Overdraft, Return of Deposited 
Item, and Stop Payment Order Fees, All Institutions, 2000-2007: 

[See PDF for image] 

This figure is a multiple horizontal line graph. The vertical axis of 
the graph represents dollars, adjusted for inflation, from 0 to 25. The 
vertical axis of the graph represents tears from 2000 to 2007. Lines 
depict the following four types of fees: 

Insufficient funds; 
Overdraft; 
Stop payment order; 
Returns of deposited items. 

All fees show a slight increase from 2000 to 2007, with the following 
values approximated from the graph: 

Insufficient funds: 
2000: approximately $22; 
2007: approximately $24. 
 
Overdraft: 
2000: approximately $21; 
2007: approximately $23. 

Stop payment order: 
2000: approximately $17; 
2007: approximately $19. 

Returns of deposited items: 
2000: approximately $9; 
2007: approximately $11. 

Source: GAO analysis of Moebs Services data. 

[End of figure] 

Across all institutions, average insufficient funds and overdraft fees 
were the highest dollar amounts, on average, of the fees reported. For 
example, the average insufficient funds fee among the institutions 
surveyed by Moebs Services in 2006 was $24.02, while among the 
institutions surveyed by Informa Research Services it was $26.07. Data 
from Informa Research Services also indicated that since 2004 a small 
number of institutions (mainly large banks) have been applying tiered 
fees to certain transactions, such as overdrafts. For example, an 
institution may charge one amount for the first three overdrafts in a 
year (tier 1), a higher rate for overdrafts four to six of that year 
(tier 2), and an even higher rate for overdrafts seven and beyond in a 
single year (tier 3). Of the institutions that applied tiered fees in 
2006, the average overdraft fees were $26.74, $32.53, and $34.74 for 
tiers 1, 2, and 3, respectively. 

The data from these vendors also indicate that fee amounts for some 
transactions or services varied or generally declined during this 
period. For example: 

* The average ATM surcharge fee (assessed by a depository institution 
when its ATM is used by a nonaccount holder) among institutions 
surveyed by Moebs Services was $0.95 in 2000, rising to $1.41 in 2003, 
and declining to $1.34 in 2006. This variability was also evident in 
the fees charged by institutions surveyed by Informa Research Services. 

* The average foreign ATM fee (assessed by a depository institution 
when its account holders use another institution's ATM) generally 
declined, from $0.92 in 2000 to $0.61 in 2006 among institutions 
surveyed by Moebs Services and from $1.83 to $1.14 over the same period 
among institutions surveyed by Informa Research Services. 

* The average monthly maintenance fees on standard noninterest bearing 
checking accounts decreased from $6.81 in 2000 to $5.41 in 2006 among 
institutions surveyed by Informa Research Services (Moebs Services did 
not provide data on this fee). Additionally, an increasing number of 
the surveyed institutions offered free checking accounts (with a 
minimum balance required to open the account) over this period. For 
example, in 2001 almost 30 percent of the institutions offered free 
checking accounts, while in 2006 the number grew to about 60 percent of 
institutions. 

Finally, some fees declined in amount, as well as in terms of their 
prevalence. For example, Moebs Services reported that the institutions 
it surveyed charged annual ATM fees, generally for issuing a card to 
customers for their use strictly at ATMs, ranging from an average of 
$1.37 in 2000 to $1.14 in 2003. However, Moebs Services stopped 
collecting data on this fee because, according to a Moeb's official, 
fewer and fewer institutions reported charging the fee. Similarly, 
Moebs Services reported that the institutions it surveyed charged an 
annual debit card fee, generally for issuing a card to customers for 
their use at ATMs, averaging from $0.94 in 2000 to $1.00 in 2003; but, 
it stopped collecting this data as well. (Informa Research Services 
reported data on these fees through 2006, when they averaged $0.44 and 
$0.74, respectively.) Appendix III contains further details on the data 
reported by Moebs Services and Informa Research Services, in both 
nominal and real dollars. 

A number of factors may explain why some fees increased while others 
decreased. For example, greater use of automation and lower cost of 
technology may explain why certain ATM fees have decreased or been 
eliminated altogether. Additionally, competition among depository 
institutions for customers likely has contributed to the decrease in 
monthly maintenance fees and the increased prevalence of "free 
checking" accounts. Factors that may be influencing trends in fees 
overall are discussed subsequently in this report. 

Fees Generally Varied by Type and Size of Institution: 

Using data supplied by the two vendors, we compared the fees for 
checking and savings accounts by type of institution and found that, on 
average, banks and thrifts charged more than credit unions for almost 
all of them (the exception was the fee for returns of deposited 
items).[Footnote 17] For example, banks and thrifts charged on average 
roughly three dollars more than credit unions for insufficient funds 
and overdraft fees throughout the period. However, on average credit 
unions charged almost $6.00 more than banks and thrifts on returns of 
deposited items. 

The amounts institutions charged for certain transactions also varied 
by the institution's size, as measured by assets. Large institutions-- 
those with more than $1 billion in assets--on average charged more for 
the majority of fees than midsized or small institutions--those with 
assets of $100 million to $1 billion and less than $100 million, 
respectively. Large institutions on average charged between $4.00 and 
$5.00 more for insufficient funds and overdraft fees than smaller 
institutions. Further, on average, large banks and thrifts consistently 
charged the highest insufficient funds and overdraft fees, while small 
credit unions consistently charged the lowest. Specifically, in 2007 
large banks and thrifts charged an average fee of about $28.00 for 
insufficient funds and overdraft fees, while small credit unions 
charged an average fee of around $22.00. While large institutions in 
general had higher fees than other sized institutions, smaller 
institutions charged considerably more for returns of deposited items. 
The results of our analysis are consistent with the Federal Reserve's 
2003 report on bank fees, which showed that large institutions charged 
more than medium-and small-sized institutions (banks and thrifts 
combined) for most fees.[Footnote 18] 

Our analysis of Informa Research Services data also showed that, 
controlling for both institution type and size, institutions in some 
regions of the country, on average, charged more for some fees, such as 
insufficient funds and overdraft fees, than others. For example, in 
2006 the average overdraft fee in the southern region was $28.18, 
compared with a national average of $26.74 and a western region average 
of $24.94. 

Financial Institutions' Income from Noninterest Sources, Including 
Fees, Has Increased since 2000: 

Between 2000 and 2006, the portion of depository institutions' income 
from noninterest sources, including income generated from bank fees, 
varied but generally increased. As shown in figure 3, banks' and 
thrifts' noninterest income rose from 24 to 27 percent of total income 
between 2000 and 2006 (peaking at 33 percent in 2004) and credit 
unions' noninterest income rose from 11 to 14 percent (peaking at 20 
percent in 2004). The percent of noninterest income appeared to have an 
inverse relationship to changes in the federal funds rate--the interest 
rate at which depository institutions lend balances at the Federal 
Reserve to other depository institutions--which is an indicator of 
interest rate changes during the period. Low interest rates combined 
with increased competition from other lenders can make it difficult for 
banking institutions to generate revenues from interest rate "spreads," 
or differences between the interest rates that can be charged for loans 
and the rates paid to depositors and other sources of funds. 

Figure 3: Banks', Thrifts', and Credit Unions' Interest Income and 
Noninterest Income as a Percentage of Total Income and the Federal 
Funds Rate, 2000-2006: 

[See PDF for image] 

This figure contains two graphs (Banks and thrifts and Credit Unions) 
that are a combination of line and stacked bar data. Both graphs are 
formatted as follows: The left vertical axis represents percentage of 
interest and noninteres income from 0 to 100. The right vertical axis 
represents Federal fund rate from 0 to 8. The horizontal axis 
represents calendar years from 2000 to 2006. In each graph, a stacked 
bar depicts interest income and noninterest income. A line depicts 
annual federal funds rate. In general, as the annual federal rate 
drops, interest income drops slightly and noninterest income rises 
slightly, and as the federal rate rises, interest income rises 
slightly, and noninterest income drops slightly. 

Source: GAO analysis of FDIC's Statistics on Depository Institutions, 
NCUA's Financial Performance Report data, and the Federal Reserve's 
federal funds rate data. 

[End of figure] 

However, noninterest income includes revenue derived from a number of 
fee-based banking services, not all of them associated with checking 
and savings accounts. For example, fees from credit cards, as well as 
fees from mutual funds sales commissions, are included in noninterest 
income. Thus, noninterest income cannot be used to specifically 
identify either the extent of fee revenue being generated, or the 
portion that is attributable to any specific fee. 

Among other financial information, banks and thrifts are required to 
report data on service charges on deposit accounts (SCDA), which 
includes most of the fees associated with checking and deposit 
accounts.[Footnote 19] Specifically, SCDA includes, among other things, 
account maintenance fees, charges for failing to maintain a minimum 
balance, some ATM fees, insufficient funds fees, and charges for stop 
payment orders. As figure 4 shows, banks' and thrifts' SCDA, and to a 
somewhat greater extent credit union's fee income as a percentage of 
total income, increased overall during the period, with a slight 
decline in recent years. However, it should be noted that credit union 
fee income includes income generated from both deposit accounts and 
other products that credit unions offer, such as fees for credit cards 
and noncustomer use of proprietary ATMs; thus, the percentage of fee 
income they report is not directly comparable to the service charges 
reported by banks and thrifts.[Footnote 20] 

Figure 4: Banks' and Thrifts' SCDA and Credit Unions' Fee Income as a 
Percentage of Total Income, 2000-2006: 

[See PDF for image] 

This figure contains two line graphs: one for banks and thrifts; one 
for credit unions. Both graphs have a vertical axis that represents 
percentage of total income from 0 to 16, and a horizontal axis that 
represents years from 2000 to 2006. Depicted on the graphs are the 
following approximated fee incomes: 

Commercial banks: 
Fee income is approximated at between 4% and 6% for the entire time 
period. 

Thrifts: 
Fee income is approximated at between 0.5% and 1% for the entire time 
period. 

Credit unions:
Fee income is approximated at between 8% and 14% for the entire time 
period. 

Source: GAO analysis of FDIC's Statistics on Depository Institutions 
and NCUA's Financial Performance Report data. 

[End of figure] 

Because institutions do not have to report SCDA by line item, it is 
difficult to estimate the extent to which specific fees on checking and 
deposit accounts contributed to institutions' revenues or how these 
contributions have changed over the years. Further, some fees that 
banking customers incur may not be covered by SCDA. For example, 
institutions report monthly account maintenance fee income as SCDA, but 
not income earned from fees charged to a noncustomer, such as fees for 
the use of its proprietary ATMs. Similarly, credit unions' reported fee 
income cannot be used to identify fee revenues from specific checking 
and savings account fees. 

Changes in Consumer Behavior and Depository Institution Practices May 
Affect Trends in Bank Fees: 

Since the mid-1990s, consumers have increasingly used electronic forms 
of payment such as debit cards for many transactions, from retail 
purchases to bill payment. By 2006 more than two-thirds of all U.S. 
noncash payments were made by electronic payments (including credit 
cards, debit cards, automated clearing house, and electronic benefit 
transfers), while the number of paper payments (e.g., checks) has 
decreased due to the rapid growth in the use of debit cards.[Footnote 
21] Generally, these electronic payments are processed more quickly 
than traditional paper checks. For example, debit card transactions 
result in funds leaving customer's checking accounts during or shortly 
after the transaction, as opposed to checks, which may not be debited 
from a customer's account for a few days (although depository 
institutions have also begun to process checks faster, in part, as a 
result of the Check Clearing for the 21ST Century Act (Check 21 Act) 
and implementing regulations, which became effective in late 
2004).[Footnote 22] Despite this overall shortening of time or "float" 
between the payment transaction and the debiting of funds from a 
consumer's account, depository institutions can hold certain nonlocal 
checks deposited by a consumer for up to 11 days.[Footnote 23] 
According to consumer groups and bank representatives, this creates the 
potential for increased incidences of overdrafts if funds are debited 
from a consumers account faster than deposits are made available for 
withdrawal. The shift in consumer payment preferences has occurred 
rather quickly, and we identified little research on the extent to 
which the increased use of electronic payments, such as debit cards, 
has affected the prevalence of specific deposit account fees, such as 
overdraft or insufficient fund fees.[Footnote 24] 

Additionally, some institutions have internal policies for posting 
deposits to and withdrawals from customer accounts that can affect the 
incidence of fees. For example, consumer group representatives, bank 
representatives, and federal regulatory officials told us that many 
institutions process the largest (highest dollar amount) debit 
transaction before the smallest one regardless of the order in which 
the customers initiated the transactions. This practice can affect the 
number of overdraft fees charged to a customer. For example, if a 
customer had only $600 available in their account, processing a payment 
for $590 first before three transactions of $25 each would result in 
three instances of overdrafts, whereas reversing the order of 
processing payments from smallest to largest would result in one 
instance of overdraft. Banking officials said that this processing of 
largest to smallest transactions first ensures that consumers' larger, 
and presumably more important payments, such as mortgage payments, are 
made. One of the federal banking regulators--OTS--issued guidance in 
2005 stating that institutions it regulates should not manipulate 
transaction clearing steps (including check clearing and batch debit 
processing) to inflate fees. We were unable to identify comprehensive 
information regarding the extent to which institutions were using this 
or other methods (chronological, smallest-to-largest, etc.) of 
processing payments. 

Further, some depository institutions have automated the process used 
to approve overdrafts and have increasingly marketed the availability 
of overdraft protection programs to their customers. Historically, 
depository institutions have used their discretion to pay overdrafts 
for consumers, usually imposing a fee. Over the years, to reduce the 
costs of reviewing individual items, some institutions have established 
policies and automated the process for deciding whether to honor 
overdrafts, but generally institutions are not required to inform 
customers about internal policies for determining whether an item will 
be honored or denied. In addition, third-party vendors have developed 
and sold automated programs to institutions, particularly to smaller 
institutions, to handle overdrafts. According to the Federal Reserve, 
what distinguishes the vendor programs from in-house automated 
processes is the addition of marketing plans that appear designed to 
(1) promote the generation of fee income by disclosing to account 
holders the dollar amount that the consumer typically will be allowed 
to overdraw their account and (2) encourage consumers to use the 
service to meet short-term borrowing needs.[Footnote 25] An FDIC 
official noted that some vendor contracts tied the vendor's 
compensation to an increase in the depository institution's fee 
revenues. 

We were unable to identify information on the extent to which 
institutions were using automated overdraft programs developed and sold 
by third-party vendors or the criteria that these programs used. 
Representatives from a few large depository institutions told us that 
they are using software programs developed in-house to determine which 
account holders would have overdrafts approved. According to consumer 
groups and federal banking regulators, software vendors appear to be 
primarily marketing automated overdraft programs to small and midsized 
institutions. The 2005 interagency guidance on overdraft protection 
programs encouraged depository institutions to disclose to consumers 
how transactions would be processed and how fees would be assessed. An 
FDIC official noted that, while no empirical data are available, 
institutions' advertising of overdraft protection programs appears to 
have diminished since publication of the interagency guidance. 

No Public Data Currently Exist on Characteristics of Consumers That 
Incur Bank Fees, but FDIC May be Able to Provide Some Information in 
the Future: 

Because fees for overdrafts and instances of insufficient funds may be 
more likely to occur in accounts with lower balances, there is some 
concern that they may be more likely among consumers who traditionally 
have the least financial means, such as young adults and low-and 
moderate-income households. We were not able to analyze the demographic 
characteristics of customers that incur bank fees because doing so 
would require transaction-level data for all account holders--data that 
are not publicly available. We identified only two studies--one by an 
academic researcher and one by a consumer group--that discussed the 
characteristics of consumers who pay bank fees. Neither study obtained 
a sample of customers who overdraw that was representative of the U.S. 
population. According to the academic researcher's study, which used 
transaction level account data for one small Midwest bank, overdrafts 
were not significantly correlated with consumers' income levels, 
although younger consumers were more likely to have overdrafts than 
consumers of other ages.[Footnote 26] However, the results of this 
study cannot be generalized to the larger population because the small 
institution used was not statistically representative of all depository 
institutions. The consumer group study, which relied on a survey in 
which individuals with bank accounts were interviewed, found that those 
bank customers who had had two or more overdrafts in the 6 months 
before the date of the interview were more often low income, single, 
and nonwhite.[Footnote 27] However, this study also had limitations, 
including the inherent difficulty in contacting and obtaining 
cooperation from a representative sample of U.S. households with a 
telephone survey and because it relied on consumers' recall of and 
willingness to accurately report past events rather than on actual 
reviews of their transactions. While we cannot fully assess the quality 
of results from these two studies, we note them here to illustrate the 
lack of definitive research in this area. 

Partly in response to consumer concerns raised by overdraft protection 
products, FDIC is currently conducting a two-part study on overdraft 
protection products offered by the institutions it supervises. The 
results of this study may provide information on the types of consumers 
who pay bank fees. For both parts, FDIC is collecting data that are not 
currently available in the call reports or other standard regulatory 
reports. During the first phase of its study, FDIC collected data from 
500 state-chartered nonmember banks about their overdraft products and 
policies. Data from the first phase will reveal how many FDIC-regulated 
banks offer overdraft protection programs and the details of these 
programs, such as how many of them are automated. FDIC expects to 
complete the data collection effort at the end of 2007. The second 
phase involves collecting transaction-level data on the depositors who 
use the overdraft products for 100 of the 500 institutions for a year. 
As part of this phase, FDIC plans to use income information by U.S. 
Census Bureau tract data as a proxy for account holder's income to try 
and determine the characteristics of consumers who incur overdraft 
fees. FDIC expects to complete the analysis at the end of 2008. 

Regulators Focus on Depository Institutions' Compliance with Federal 
Disclosure Requirements: 

Federal regulators assess depository institution's compliance with the 
disclosure requirements of Regulations DD and E during examinations by 
reviewing an institution's written policies and procedures, including a 
sample of disclosure documents. In general, regulators do not review 
the reasonableness of such fees unless there are safety and soundness 
concerns. Since 2005, NCUA has included examination procedures 
specifically addressing institutions' adherence to the 2005 interagency 
guidance concerning overdraft protection products and, in September 
2007, all of the regulators revised their Regulation DD examination 
procedures to include reviews of the disclosures associated with such 
products offered by institutions that advertise them. In general, 
examinations are risk-based--that is, targeted to address factors that 
pose risks to the institution--and to help focus their examinations of 
individual institutions, the regulators review consumer complaints. Our 
analysis of complaint data from each of the federal regulators showed 
that while they receive a large number of checking account complaints, 
a small percentage of these complaints concerned the fees and 
disclosures associated with either checking or savings accounts. The 
federal regulators reported identifying a number of violations of the 
disclosure sections of Regulations DD and E during their examinations 
but collectively identified only two related formal enforcement actions 
from 2002 through 2006. Finally, officials from the six state 
regulators told us that, while they may look at compliance with 
Regulations DD and E, their primary focus is on safety and soundness 
issues and compliance with state laws and regulations, and they 
reported receiving few consumer complaints associated with checking and 
savings account fees and disclosure issues. 

Federal Regulators Primarily Review Policies, Procedures, and 
Disclosure Documents: 

Our review of the examination handbooks and examination reports 
indicated that the five federal regulators used similar procedures to 
assess compliance with Regulations DD and E (as discussed below, NCUA 
also includes steps to assess credit unions' adherence to the 2005 
interagency guidance on overdraft protection products, but that is 
distinct from assessing compliance with regulatory requirements). 
[Footnote 28] In general, the Regulation DD and E compliance 
examination procedures for each of the five federal banking regulators 
called for examiners to: 

* verify that the institution had policies or procedures in place to 
ensure compliance with all provisions of the regulations; 

* review a sample of account disclosure documents and notices required 
by the regulation to determine whether contents were accurate and 
complete; and: 

* review a sample of the institution's advertisements to (1) determine 
if the advertisements were misleading, inaccurate, or misrepresented 
the deposit contract and (2) ensure that the advertisements included 
all required disclosures. 

Federal regulators' examination procedures for Regulations DD and E do 
not require examiners to evaluate the reasonableness of fees associated 
with checking and savings accounts. According to the Federal Reserve, 
the statutes administered by the regulators do not specifically address 
the reasonableness of fees assessed. Additionally, officials of the 
federal regulators explained that there were no objective industry-wide 
standards to assess the "reasonableness" of fees.[Footnote 29] OCC 
officials told us that an industry-wide standard would not work 
because, among other things, fees vary among banks that operate in 
different geographical areas and that competitive conditions in local 
markets determine fees. According to the federal regulatory officials, 
each depository institution is responsible for setting the fee for a 
particular product and service, and regulators look at rates or pricing 
issues only if there is a safety and soundness concern. For example, 
NCUA officials told us that an examiner's finding that fee income was 
excessive could create safety and soundness issues, depending on the 
way the fees were generated and how the resulting revenues were spent. 

The regulators stated that while they did not evaluate the 
reasonableness of fees, the disclosure requirements of Regulations DD 
and E were intended to provide consumers with information that allow 
them to compare fees across institutions. Additionally, they told us 
that market forces should inhibit excessive fees since the financial 
institution would likely lose business if it decided to charge a fee 
that was significantly higher than its competitors. 

Recent Revisions to Regulation DD Examination Procedures Require 
Further Review of Disclosures for Institutions Advertising Overdraft 
Protections: 

On September 13, 2007, the Federal Financial Institutions Examination 
Council's Task Force on Consumer Compliance--a formal interagency body 
composed of representatives of the Federal Reserve, FDIC, NCUA, OCC, 
and OTS--approved revised interagency compliance examination procedures 
for Regulation DD. Officials of each of the federal regulators told us 
that their agencies either had begun or were in the process of 
implementing the updated examination procedures. Among other changes, 
the revised examination procedures address the Regulation DD disclosure 
requirements for institutions that advertise the payment of overdrafts. 
Specifically, the revised examination procedures ask the examiners to 
determine whether the institution clearly and conspicuously discloses 
in its advertisements (1) the fee for the payment of each overdraft, 
(2) the categories of transactions for which a fee may be imposed for 
paying an overdraft, (3) the time period by which a consumer must repay 
or cover any overdraft, and (4) the circumstances under which the 
institution will not pay an overdraft. 

These items are among those that were identified as "best practices" by 
the 2005 interagency guidance. According to the guidance, clear 
disclosures and explanations to consumers about the operation, costs, 
and limitations of an overdraft protection program are fundamental to 
using such protection responsibly. Furthermore, the guidance states 
that clear disclosures and appropriate management oversight can 
minimize potential customer confusion and complaints, as well as foster 
good customer relations. The interagency guidance identifies best 
practices currently observed in or recommended by the industry on 
marketing, communications with consumers, and program features and 
operations. For example, the best practices include marketing the 
program in a way that does not encourage routine overdrafts, clearly 
explaining the discretionary nature of the program, and providing the 
opportunity for consumers to opt out of the program. 

Prior to the revised Regulation DD examination procedures, NCUA had 
adopted procedures to assess the extent to which institutions it 
examines followed the interagency guidance. In December 2005, NCUA 
adopted "bounce protection" (that is, overdraft protection) examination 
procedures as part of the agency's risk-focused examination program. 
The examination procedures were developed to coincide with the issuance 
of the 2005 interagency guidance on overdraft protection programs, 
according to an NCUA official.[Footnote 30] In an NCUA letter to credit 
unions, the agency stated that "credit unions should be aware the best 
practices are minimum expectations for the operation of bounce 
protection programs."[Footnote 31] NCUA's examination procedures 
included a review of several key best practices. For example, the 
examination procedures assess whether credit unions provided customers 
with the opportunity to elect overdraft protection services or, if 
enrollment in such a program was automatic, to opt out. In addition to 
other areas of review, the examination procedures include a review of 
whether the credit union distinguished overdraft protection from "free" 
account features, and if the credit union clearly disclosed the fees of 
its overdraft protection program. 

To a more limited extent, OTS had overdraft protection examination 
procedures in place that address its guidance, but these were limited 
to a review of compliance-related employee training and the materials 
used to market or educate customers about the institution's overdraft 
protection programs. Officials from the Federal Reserve, OCC, and FDIC 
reported that, beyond the recent revisions to Regulation DD examination 
procedures, their agencies did not have specific examination procedures 
related to the 2005 interagency guidance because the best practices are 
not enforceable by law. These officials told us that, while not 
following a best practice from the interagency guidance did not 
constitute a violation of related laws or regulations, they encourage 
institutions to follow the best practices. An FDIC official noted that 
a deviation from the guidance could serve as a "red flag" for an 
examiner to look more closely for potential violations. 

While Federal Regulators Received a Large Number of Checking Account 
Complaints, a Small Percentage Were Related to Fees and Disclosures: 

Officials of the federal banking regulators explained that examiners 
use complaint data to help focus examinations that they are planning or 
to alter examinations already in progress. For example, according to 
one regulator, if consumers file complaints because they have not 
received a disclosure document prior to opening an account, this could 
signify a violation of Regulation DD, which the examiners would review 
as part of the examination for this regulation. The officials noted 
that consumer complaints could be filed and were often resolved at the 
financial institution involved, in which case the consumer would not be 
likely to contact a federal banking regulator.[Footnote 32] However, if 
the consumer is not satisfied with the financial institution's 
response, a consumer would then likely file a complaint with the 
federal banking regulator. Consumers may also file a complaint directly 
with federal regulators without contacting the financial institution 
about a problem. In either case, regulators are required to monitor the 
situation until the complaint is resolved.[Footnote 33] 

According to the regulators' complaint data, most of the complaints 
received from 2002 to 2006 involved credit cards, although a 
significant number of complaints were related to checking accounts and 
a somewhat smaller number involved savings accounts (fig. 5). In 
analyzing complaints specifically about checking and savings accounts 
from 2002 through 2006, we found that, on average, about 10 percent 
were related to fees, and 3 percent were related to disclosures. (For 
information on how the Federal Reserve, FDIC, OCC, and OTS resolved 
complaints, see app. IV.) Collectively fee and disclosure complaints 
represented less than 5 percent of all complaints received during this 
period. Officials of the banking regulators told us that the 
overwhelming bulk of complaints they received on checking and saving 
accounts concerned a variety of other issues, including problems 
opening or closing an account, false advertising, and discrimination. 

Figure 5: Complaints Related to Four Major Products for All Federal 
Regulators: 

[See PDF for image] 

This figure is a multiple line graph depicting complaints related to 
four major products for all federal regulators. The vertical axis of 
the graph represents number of complaints in thousands from 0 to 35. 
The horizontal axis of the graph represents years from 2002 to 2006. 
Lines depicting the number of complaints are illustrated for the 
following categories: 

Credit card complaints; 
Checking account complaints; 
Mortgage complaints; 
Savings account complaints; 
Total complaints. 

Source: GAO analysis of OCC, OTS, NCUA, and Federal Reserve data. 

Note: For the combined period of 2002 to 2006, over 70 percent of the 
complaints were filed against national banks, which are supervised by 
OCC. 

[End of figure] 

Among the regulators, OCC included in its complaint data the specific 
part of the regulation that was the subject of the complaint. Of the 
consumer complaints about fees that OCC received from 2002 through 
2006, 39 percent were for "unfair" fees (concerning the conditions 
under which fees were applied), 2 percent were for new fees, 6 percent 
were for "high" fees (the amount of the fees), and 53 percent concerned 
fees in general. The majority of disclosure-related complaints that OCC 
received during this period were for the Regulation DD provision that, 
in part, requires that depository institutions provide account 
disclosures to a consumer before an account is opened or a service is 
provided, whichever is earlier, or upon request. OCC's analysis of 
these complaints serves to identify potential problems--at a particular 
bank or in a particular segment of the industry--that may warrant 
further investigation by examination teams, supervisory guidance to 
address emerging problems, or enforcement action. 

Federal Regulators Identified a Number of Violations of Fee-Related 
Disclosure Provisions during Their Examinations but Took Few Related 
Enforcement Actions: 

The federal banking regulators' examination data for the most recent 5 
calendar years (2002 through 2006) showed a total of 1,674 instances in 
which the regulators cited depository institutions for noncompliance 
with the fee-related disclosure requirements of Regulations DD (1,206 
cases) or E (468 cases). On average, this is about 335 instances 
annually among the nearly 17,000 depository institutions that these 
regulators oversee. As shown in table 2, most of the disclosure-related 
violations were reported by FDIC--83 percent of the Regulation DD 
disclosure-related violations (998 of 1,206) and 74 percent of the 
Regulation E disclosure-related violations (348 of 468). According to 
FDIC officials, one reason for the larger number of fee-related 
violations identified by FDIC is the large number of institutions for 
which it is the primary federal regulator (5,220 depository 
institutions as of December 31, 2006). Also, differences among the 
regulators may appear due to the fact that they do not count the 
numbers of violations in exactly the same way. 

Table 2: Number of Regulation DD and E Disclosure-Related Violations 
Identified by Federal Banking Regulators from 2002-2006: 

Regulator: FDIC; 
Number of Regulation DD disclosure-related violations: 998; 
Number of Regulation E disclosure-related violations: 348; 
Number of compliance examinations between 2000-2006[A]: 9,876; 
Number of institutions regulated in 2006: 5,220. 

Regulator: Federal Reserve; 
Number of Regulation DD disclosure-related violations: 67; 
Number of Regulation E disclosure-related violations: 99; 
Number of compliance examinations between 2000-2006[A]: 1,526; 
Number of institutions regulated in 2006: 902. 

Regulator: NCUA; 
Number of Regulation DD disclosure-related violations: 102; 
Number of Regulation E disclosure-related violations: 10; 
Number of compliance examinations between 2000-2006[A]: 35,757[B]; 
Number of institutions regulated in 2006: 8,362. 

Regulator: OCC; 
Number of Regulation DD disclosure-related violations: 26; 
Number of Regulation E disclosure-related violations: 8; 
Number of compliance examinations between 2000-2006[A]: 6,566; 
Number of institutions regulated in 2006: 1,715. 

Regulator: OTS; 
Number of Regulation DD disclosure-related violations: 11; 
Number of Regulation E disclosure-related violations: 3; 
Number of compliance examinations between 2000-2006[A]: 3,203; 
Number of institutions regulated in 2006: 761. 

Regulator: Total; 
Number of Regulation DD disclosure-related violations: 1,206; 
Number of Regulation E disclosure-related violations: 468; 
Number of compliance examinations between 2000-2006[A]: 43,282; 
Number of institutions regulated in 2006: 16,960. 

Sources: GAO analysis of FDIC, Federal Reserve, NCUA, OCC, and OTS 
data. 

Note: The fee-related disclosure violations represent cited instances 
of noncompliance with sections 230.3(a), 230.3(b), 230.4(a) and 
230.4(b)(4) of Regulation DD and sections 205.4(a)(1), 205.7(a), and 
205.7(b)(5) of Regulation E. 

[A] Examinations are risk focused, and not all examinations assess 
compliance with Regulations DD and E. 

[B] This number represents the number of federally chartered and state- 
chartered institutions examined. 

[End of table] 

According to our analysis of the regulators' data, the most frequent 
violation associated with the initial disclosure requirements of 
Regulation DD was noncompliance with the requirement that disclosure 
documents be written in a clear and conspicuous manner, in a form that 
customers can keep, and reflect the terms of the legal obligation of 
the account agreement between the consumer and the depository 
institution (1,053 cases). Examiners reported violations of two other 
disclosure provisions of Regulation DD. First, they found violations of 
the requirement that depository institutions provide account disclosure 
documents to a consumer before an account is opened or a service is 
provided, whichever is earlier, or upon request (124 cases). Second, 
they reported violations of the requirement that disclosure documents 
state the amount of any fee that may be imposed in connection with the 
account or an explanation of how the fee will be determined and the 
conditions under which it may be imposed (29 cases). 

The most frequent violation associated with the initial disclosure 
requirements of Regulation E was of the requirement that financial 
institutions make the disclosure documents available at the time a 
consumer contracts for an EFT or before the first EFT is made involving 
the consumer's account (321 cases). Other disclosure provisions from 
Regulation E for which examiners cited violations included those that 
required disclosure statements to be in writing, clear and readily 
understandable, and in a form that customers can keep (5 cases) and to 
list any fees imposed by the financial institution for EFTs or for the 
right to make transfers (142 cases). 

According to officials of the federal banking regulators, examiners are 
typically successful in getting the financial institutions to take 
corrective action on violations either during the course of the 
examination or shortly thereafter, negating the need to take formal 
enforcement action. FDIC, NCUA, OCC, and Federal Reserve officials 
reported that from 2002 to 2006 they had not taken any formal 
enforcement actions solely related to violations of the disclosure 
requirements from Regulations DD and E, while OTS reported taking two 
such actions during the period.[Footnote 34] 

State Regulators Relied on and Worked with Federal Regulators to Review 
Regulations DD and E and Reported Few Consumer Complaints about Fees 
and Disclosures: 

Officials of all six of the state banking regulators that we contacted 
told us that the primary focus of their examinations is on safety and 
soundness issues and compliance with state laws and regulations. 
Officials of four of the six state banking regulators we contacted told 
us their examiners also assess compliance with Regulation DD, and three 
of these four indicated that they assess compliance with Regulation E 
as well. Representatives of the four state banking regulators also told 
us that if they identify a violation and no federal regulator is 
present, they cite the institution and forward this information to the 
appropriate federal banking regulator. The other two state banking 
regulators said that they review compliance with federal regulations, 
including Regulations DD and E, only if the federal banking regulators 
have identified noncompliance with federal regulations during the prior 
examination. 

Officials in four states said that their state laws and regulations 
contained additional fee and disclosure requirements beyond those 
contained in Regulations DD and E. For example, according to 
Massachusetts state banking officials, Massachusetts bank examiners 
review state-chartered institutions for compliance with a state 
requirement that caps the fees on returns of deposited items. In 
another example, an Illinois law restricts institutions from charging 
an ATM fee on debit transactions made with an electronic benefits card 
(a card that beneficiaries used to access federal or state benefits, 
such as food stamp payments), according to Illinois state banking 
officials. Additionally, these state officials told us that Illinois 
state law requires all state-chartered institutions to annually 
disclose their fee schedules for consumer deposit accounts. According 
to an official at the New York state banking department, their state 
has a number of statutes and regulations concerning bank fees and their 
disclosure to consumers and their state examiners review institutions' 
compliance with these requirements. The laws and regulations cover, 
among other things, permissible fees, required disclosure documents, 
and maximum insufficient fund fees, according to the New York state 
officials. 

Two of the states reported that, in conducting examinations jointly 
with the federal regulators, they had found violations of the 
Regulation DD and E disclosure provisions from 2002 to 2006 (one state 
reported 1 violation of Regulation DD, and one state reported 16 
violations of Regulation DD and 10 violations of Regulation E). Four of 
the states did not report any violations (in one case, the state agency 
reported that they did not collect data on violations). Three states 
also reported that they had not taken any formal enforcement actions 
against institutions for violations of Regulation DD or E disclosure 
provisions; two states reported that they did not collect data on 
enforcement actions for violations of these regulations; one state did 
not report any data to us on enforcement actions. Regarding consumer 
complaints, officials in two states said that they did not maintain 
complaint data concerning fees and disclosures associated with checking 
and savings accounts, and the other four states reported relatively few 
complaints associated with fees and disclosures. For example, 
Massachusetts reported a total of 89 complaints related to fees and 
disclosures during the period, in comparison to 4,022 total complaints 
over the period. 

Despite Federal Regulations and Compliance Examinations, We Experienced 
Difficulty Obtaining Fee Information: 

The results of our requests for information on fees or account terms 
and conditions at depository institutions we visited, as well as our 
visits to institutions' Web sites, suggest that consumers may find it 
difficult to obtain such information upon request prior to opening a 
checking or savings account. A number of factors could explain the 
difficulties we encountered in obtaining comprehensive information on 
fees and account terms and conditions, including branch staff 
potentially not being knowledgeable about federal disclosure 
requirements or their institution's available disclosure documents. 
Further, federal banking regulators' examination processes do not 
assess whether potential customers can easily obtain information that 
institutions are required to disclose. Potential customers unable to 
obtain such information upon request prior to opening an account will 
not be in a position to make meaningful comparisons among institutions, 
including the amounts of fees they may face or the conditions under 
which fees would be charged. 

Federal Laws and Regulations Require Disclosures so That Consumers Can 
Make Meaningful Comparisons among Institutions: 

As we have seen, TISA requires, among other things, that depository 
institutions provide consumers with clear and uniform disclosures of 
the fees that can be assessed against all deposit accounts, including 
checking and savings accounts, so that consumers may make a meaningful 
comparison between different institutions. Depository institutions must 
provide these disclosures to consumers before they open accounts or 
receive a service from the institution or upon a consumer's request. 
Regulation DD and the accompanying staff commentary specify the types 
of information that should be contained in these disclosures, 
including: 

* minimum balance required to open an account; 

* monthly maintenance fees and the balance required to avoid them; 

* fees charged when a consumer opens or closes an account; 

* fees related to deposits or withdrawals, such as charges for using 
the institution's ATMs; and: 

* fees for special services--for example, insufficient funds or charges 
for overdrafts and stop payment order fees on checks that have been 
written but not cashed. 

Regulation DD also requires depository institutions to disclose 
generally the conditions under which a fee may be imposed--that is, 
account terms and conditions. For example, institutions must specify 
the categories of transactions for which an overdraft fee may be 
imposed but do not have to provide an exhaustive list of such 
transactions. 

While depository institutions are required to provide consumers with 
clear and uniform disclosures of fees to enable meaningful comparisons 
among institutions, consumers may consider other factors when shopping 
among institutions. For example, federal banking regulators and one 
consumer group told us that convenience factors, such as locations of 
branches or ATMs, are typically the factors that consumers consider the 
most besides costs, when choosing where to open a checking and savings 
account. 

We Encountered Difficulties in Obtaining a Comprehensive List of Fees 
or Terms and Conditions during Our Visits to Depository Institution 
Branches and Web Sites: 

Our visits to branches of depository institutions nationwide suggested 
that some consumers may be unable to obtain, upon request, meaningful 
information with which to compare an institution's fees and how they 
are assessed before opening a checking or savings account. We also 
found that the institutions' Web sites generally did not provide 
comprehensive information on fees or account terms and conditions. 
Further, the documents that we did obtain during our visits did not 
always describe some key features of the institutions' internal 
policies and procedures that could affect the incidence or amount of 
overdraft fees assessed by the institution. 

Information Was Not Always Available during Visits to Depository 
Institution Branches: 

To assess the ease or difficulty in obtaining a comprehensive list of 
fees and account terms and conditions associated with checking and 
savings accounts, GAO staff from 12 cities across the United States 
visited 185 branches of banks, thrifts, and credit unions.[Footnote 35] 
Collectively, these branches represented 154 different depository 
institutions. Posing as potential customers, we specifically requested 
a comprehensive list of fees and terms and conditions for checking and 
savings accounts that would allow us to compare such information across 
depository institutions.[Footnote 36] The results are summarized here. 

* Comprehensive list of fees. We were unable to obtain a comprehensive 
list of fees for checking and savings accounts from 40 (22 percent) of 
the branches (representing 36 institutions). Instead, we obtained 
brochures describing only the features of different types of checking 
and savings accounts. Some of these brochures contained information on 
monthly maintenance fees and the minimum balance needed to avoid them. 
But these brochures did not contain information on other fees, such as 
overdraft or insufficient fund fees. 

While our success in obtaining a comprehensive list of fees varied 
slightly among institutions of different sizes, we did note greater 
variations among banks, credit unions, and thrifts. For example, we 
were unable to obtain a comprehensive list of fees at 18 percent of the 
103 bank branches and 20 percent of the 46 credit union branches we 
visited (representing 14 banks and 9 credit unions, respectively), 
while among the 36 thrift branches visited (representing 13 thrift 
institutions) it was 36 percent.[Footnote 37] 

* Account terms and conditions. We were unable to obtain the terms and 
conditions associated with checking and savings accounts from 61 of the 
185 branches (representing 54 depository institutions) that we visited 
(33 percent). Instead, as described earlier, we were provided with 
brochures on the different types of checking and savings accounts 
offered by the institution. 

We also observed little differences in our ability to obtain account 
terms and conditions information from institutions of different sizes 
but again found differences by types of institutions. For example, we 
were unable to obtain this information at 32 percent of the small or 
midsized institutions (34 of 108), compared with 35 percent of the 
large institutions (27 of 77). With respect to the type of depository 
institution, we were unable to obtain these documents at 30 percent of 
the bank branches (31 of 103 branches, representing 25 banks), 35 
percent of the credit union branches (16 of 46 branches, representing 
16 credit unions), and 39 percent of the thrift branches (14 of 36 
branches, representing 13 thrift institutions). 

For both the comprehensive list of fees and descriptions of account 
terms and conditions, we observed some differences among branches of a 
single depository institution. For example, we visited multiple 
branches of 23 depository institutions (that is, more than one branch 
of each of the 23). For four of these institutions, we were able to 
obtain all of the documents we requested from all of the branches. For 
the other 19 institutions, we encountered inconsistencies among the 
different branches in our ability to obtain the full set of information 
we requested. 

The results of our direct observations are generally consistent with 
those reported by the U.S. Public Interest Research Group (PIRG). In 
2001, PIRG had its staff pose as consumers and visit banks to request 
fee brochures and reported that, in many cases, its staff members were 
unable to obtain this information despite repeated requests.[Footnote 
38] Further, our results seem to be in accord with the violations data 
provided by the regulators; as noted previously, the most frequent 
violation of the fee-related disclosure provisions of Regulation DD 
cited by the regulators between 2002 and 2006 was noncompliance with 
the requirement that disclosure documents be written in a clear and 
conspicuous manner and in a form that customers can keep. 

Information Was Not Available on Many Institutions' Web Sites: 

While depository institutions are not required to have the 
comprehensive list of fees and account terms and conditions on Web 
sites if these sites are merely advertising and do not allow consumers 
to open an account online, we visited these Web sites as part of our 
effort to simulate a consumer trying to obtain information to compare 
checking and savings accounts across institutions. In visiting the Web 
sites of all the institutions that we visited in person, we were unable 
to obtain information on fees and account terms and conditions at more 
than half of them. For example, we were unable to obtain a 
comprehensive list of fees from 103 of the 202 Web sites (51 percent). 
In addition, we were unable to obtain the terms and conditions from 134 
of the 202 (66 percent). Figure 6 compares the results of our visits to 
branches and Web sites of depository institutions. 

Figure 6: Percentage of Depository Institution Branches and Web Sites 
We Visited That Did Not Provide a Comprehensive List of Fees and Terms 
and Conditions: 

[See PDF for image] 

This figure is a vertical bar graph depicting the following 
information: 

Comprehensive fee information, Institution Web site: 50%; Comprehensive 
fee information, Branch visit: 22%. 

Account terms and conditions, Institution Web site: 65%; Account terms 
and conditions, Branch visit: 33%. 

Source: GAO. 

[End of figure] 

Some of the depository institutions' Web sites nevertheless contained 
information on certain fees associated with checking and savings 
accounts. For example, most of the Web sites had information on monthly 
maintenance fees and ATM fees associated with checking accounts. 
Smaller percentages had information on fees for overdrafts and 
insufficient fund fees. For example, 

* 87 percent provided information on monthly maintenance fees, 

* 62 percent had information on ATM withdrawal fees, 

* 41 percent contained information on overdraft fees, and: 

* 37 percent provided information on insufficient fund fees. 

Several Factors Could Explain Why We Had Difficulty Obtaining 
Information Concerning Fees: 

Among branches at which we were unable to obtain a comprehensive list 
of fees, branch staff offered explanations suggesting that they may not 
be knowledgeable about federal disclosure requirements. As previously 
noted, depository institutions are required to provide consumers, upon 
request, with clear and uniform disclosures of the fees that can be 
assessed against checking and savings accounts so that consumers may 
make a meaningful comparison between different institutions. However, 
during our visits to branches of depository institutions, 

* representatives at 14 branches we visited told us that we had all the 
information on fees we needed to comparison shop--even though we 
determined that the documents they provided did not include a 
comprehensive list of fees that consumers opening accounts there might 
have to pay, 

* representatives at seven branches told us that no comprehensive fee 
schedules were available, and: 

* representatives at four branches told us that we had to provide 
personal information or open an account in order to obtain a 
comprehensive list of fees. 

In addition, we observed differences in our ability to obtain the 
comprehensive list of fees and account terms and conditions among 
branches of 19 of the 23 depository institutions we visited that had 
multiple branches. This variation among branches of the same 
institution suggests that staff knowledge of the institution's 
available disclosure documents may have varied. 

Further, the examination procedures that federal banking regulators use 
to assess compliance with Regulation DD do not require examiners to 
verify whether new or potential customers are actually able to obtain 
the required disclosure documents before opening an account. (Rather, 
the examination procedures call for the examiner to review written 
policies and procedures and disclosure documents to ensure that they 
contain information required under the regulation.) As a result, 
examination results would not provide officials of depository 
institutions with information showing whether potential customers were 
experiencing difficulty obtaining information at particular branches. 

Because the results of our visits cannot be generalized to other 
institutions, and because the federal banking regulators do not assess 
the extent to which consumers are actually able to obtain disclosure 
documents, neither we nor the regulators know how widespread this 
problem may be, nor--to the extent that it does exist among 
institutions--the reasons for it. However, regardless of the cause, if 
consumers are unable to obtain key information upon request prior to 
opening an account, they will be unable to make meaningful distinctions 
regarding charges and terms of checking and savings accounts. 

Conclusions: 

The amounts of some fees associated with checking and savings accounts 
have grown over the past few years, while others have varied or 
declined. During the same time period, the portion of depository 
institutions' incomes derived from noninterest sources, including fees, 
has varied somewhat but has risen overall. Changes in both consumer 
behavior, such as increased use of electronic forms of payment, and in 
the terms and conditions of accounts offered by depository institutions 
may be influencing these trends in fees, but available data do not 
permit determining their exact effects. Similarly, we could find little 
information on the characteristics of consumers who are most likely to 
incur fees. However, the general upward trend in fees puts a premium on 
the effective disclosure of account terms and conditions, including the 
amounts of individual fees and the conditions under which they will be 
assessed, to consumers who are shopping for savings and deposit 
accounts. 

While consumers may consider convenience or other factors, as well as 
costs, when choosing a depository institution, Regulation DD, as well 
as guidance issued by the federal banking regulators, is intended to 
ensure that consumers receive information needed to make meaningful 
comparisons among institutions regarding the savings and deposit 
accounts they offer. While the federal regulators take consumer 
complaints into account when determining the scope of their 
examinations of specific institutions, their examinations of compliance 
with Regulations DD and E consist of reviewing institutions' written 
policies, procedures, and disclosure documents. On this basis, the 
regulators have cited numbers of institutions for violating the 
disclosure requirements. Further, the regulators are in the process of 
implementing revised examination procedures for Regulation DD 
compliance that will include assessing the extent to which depository 
institutions follow requirements governing the advertisement of 
overdraft protection programs. This will be particularly important 
given that fees associated with overdrafts were among the highest of 
the types of fees for which we obtained data. However, even under the 
revised procedures, the regulators' examinations do not determine 
whether consumers actually receive required disclosure documents before 
opening an account. 

While the results of our visits to 185 branches of depository 
institutions cannot be generalized to all institutions, they raise some 
concern that consumers may find it difficult to obtain upon request, 
important disclosure documents prior to opening an account. We were 
unable to obtain detailed information about fees and account terms and 
conditions at over one-fifth of the branches we visited and, in many 
cases, we found inconsistencies among branches of the same depository 
institution. Because the federal banking regulators, in their 
compliance examinations, do not assess the extent to which consumers 
actually receive required disclosure documents before opening an 
account, they are not in a position to know how widespread this problem 
may be among the institutions they supervise, or the reasons for it. 
Incorporating into their oversight a means of assessing the extent to 
which consumers can actually obtain information to make meaningful 
comparisons among institutions, and taking any needed steps to assure 
the continued availability of such information, would further this goal 
of TISA. 

Recommendations for Executive Action: 

To help ensure that consumers can make meaningful comparisons between 
depository institutions--we recommend that the Chairman, Federal 
Deposit Insurance Corporation; Chairman, Board of Governors of the 
Federal Reserve System; Chairman, National Credit Union Administration; 
Comptroller of the Currency, Office of the Comptroller of the Currency; 
and Director, Office of Thrift Supervision assess the extent to which 
consumers receive specific disclosure documents on fees and account 
terms and conditions associated with demand and deposit accounts prior 
to opening an account, and incorporate steps as needed into their 
oversight of institutions' compliance with TISA to assure that 
disclosures continue to be made available. 

Agency Comments and Our Evaluation: 

We requested and received written comments on a draft of this report 
from FDIC, the Federal Reserve, NCUA, OCC, and OTS that are presented 
in appendixes V through IX. We also received technical comments from 
FDIC and the Federal Reserve, which we have incorporated in this report 
as appropriate. In their written responses, all five banking regulators 
indicated agreement with our report and stated that they will be taking 
action in response to our recommendation. For example, OCC stated that 
it would incorporate steps, as needed, into its oversight of 
institutions' compliance with TISA to assure that disclosures continue 
to be made available. The Federal Reserve and NCUA specifically 
mentioned the need to revise, improve, or strengthen the current 
interagency Regulation DD examination procedures. All five agencies 
indicated that they plan to address this issue on an interagency basis. 
In addition, FDIC stated that it would provide further instructions to 
state nonmember banks about their ongoing responsibility to provide 
accurate disclosures to consumers upon request and would also provide 
further instructions to its examiners of the importance of this 
requirement; NCUA stated that it would send a letter to credit unions 
reiterating the disclosure requirements for fees and account terms; the 
Federal Reserve stated that it would expand its industry outreach 
activities to facilitate compliance and promote awareness of Regulation 
DD disclosure requirements. 

As agreed with your office, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the report date. At that time, we will send copies of this report 
to the Ranking Member, Subcommittee on Financial Institutions and 
Consumer Credit, Committee on Financial Services, House of 
Representatives, and other interested congressional committees and the 
heads of the Federal Reserve, FDIC, NCUA, OCC, and OTS. We also will 
make copies available to others upon request. In addition, this report 
will be available at no charge on the GAO Web site at [Hyperlink, 
http://www.gao.gov]. 

If you or your staff have any questions concerning this report, please 
contact me at (202) 512-8678 or w [Hyperlink, [email protected]] 
[email protected]. Contact points for our Office of Congressional Relations 
and Public Affairs may be found on the last page of this report. GAO 
staff who made key contributions to this report are listed in appendix 
X. 

Sincerely yours, 

Signed by: 

David G. Wood: 
Director, Financial Markets and Community Investments: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

Our report objectives were to determine (1) the trends in the types and 
amounts of fees associated with checking and deposit accounts since 
2000; (2) how federal and selected state banking regulators address 
checking and deposit account fees in their oversight of depository 
institutions; and (3) the extent to which consumers are able to obtain 
account terms and conditions and disclosures of fees, including 
information about specific transactions and bank practices that 
determine when such fees are assessed, upon request prior to opening an 
account. 

Available Data on the Types and Amounts of Bank Fees and 
Characteristics of Consumers Who Incur These Fees: 

To provide information on the average amounts of various checking and 
savings account fees, we purchased data from two market research firms 
that specialize in the financial services industry; Moebs Services and 
Informa Research Services. Moebs Services provided us with an 
electronic file that contained data from 2000 to 2007 on the following 
fees: 

* annual automated teller machine (ATM) fees, 

* ATM surcharges, 

* foreign ATM fees, 

* insufficient funds fees, 

* overdraft fees, 

* overdraft transfer fees from a line of credit, 

* overdraft transfer fees from a deposit account, 

* return deposited item fees, 

* stop payment order fees and: 

* debit card annual fees. 

Moebs Services collected its data through telephone surveys with 
financial service personnel at each sampled institution. In the 
surveys, callers used a "mystery shopping" approach and requested rates 
and fees while posing as potential customers. The surveys were 
completed in June for each of the years we requested (the 2006 survey 
was conducted in December), and we obtained data from the following 
number of institutions (table 3): 

Table 3: Number of Institutions Surveyed by Moebs Services, 2000-2007: 

Year: 2000: 
Institutions: 2,955; 

Year: 2001: 
Institutions: 3,937; 

Year: 2002: 
Institutions: 3,937; 

Year: 2003: 
Institutions: 4,396; 

Year: 2004: 
Institutions: 5,838; 

Year: 2005: 
Institutions: 5,261; 

Year: 2006: 
Institutions: 5,264; 

Year: 2007: 
Institutions: 5,492. 

Source: GAO analysis of Moebs Services data. 

Note: The number of institutions sampled each year varied because of 
adding core based statistical areas, expanding number of states 
surveyed, a decrease in overall institutions, and refining the accuracy 
and precision of the sample selection. 

[End of table] 

The statistical design of the survey was developed for Moebs Services 
by Professor George Easton of Emory University. The design consisted of 
a stratified random sample by (1) institution type (banks and thrifts 
combined, and credit unions), (2) institution size (as shown in table 
4), and (3) regions of the country defined by metropolitan statistical 
area. 

Table 4: Definition of Institution Size Categories: 

Institution size: Small institutions; 
Asset size: Assets less than $100 million. 

Institution size: Midsized institutions; 
Asset size: Assets between $100 million to $1 billion. 

Institution size: Large institutions; 
Asset size: Assets more than $1 billion. 

Source: GAO analysis of Moebs Services data. 

[End of table] 

We took the data we obtained from Moebs Services and computed average 
fees for institutions overall, as well as for institutions by type, 
size, and region. 

We interviewed Moebs Services representatives to understand their 
methodology for collecting the data and ensuring its integrity. In 
addition, we conducted reasonableness checks on the data we received 
and identified any missing, erroneous, or outlying data. We also worked 
with Moebs Services representatives to ensure our analysis of their 
data was correct. Finally, for the years 2000 through 2002, we compared 
the average fee amounts we calculated with averages the Board of 
Governors of the Federal Reserve System (Federal Reserve) had 
calculated using Moebs Services data for their "Annual Report to the 
Congress on Retail Fees and Services of Depository Institutions." We 
found our averages to be comparable to those derived by the Federal 
Reserve and determined that the Moebs Service's data were reliable for 
the purposes of this report. 

Informa Research Services also provided us with an electronic file that 
included summary level fee data from 2000 to 2006. The data included 
information for the same fees that Moebs Services had provided, but, 
also included the following fees: 

* monthly fees for checking and savings account; 

* insufficient funds and overdraft tiered fees; 

* check enclosure and imaging fees; 

* foreign ATM balance inquiry fees; and: 

* foreign ATM denied transaction fees. 

In addition to fee data, Informa Research Services also provided us 
with data on the minimum balances required to open an account, the 
monthly balances needed to waive fees, and the maximum number of 
overdrafts or insufficient funds fees that an institution would charge 
per day. Informa Research Services collected its data by gathering the 
proprietary fee statements of the financial institutions, as well as 
making anonymous in-branch, telephone, and Web site inquiries for a 
variety of bank fees. Informa Research Services also receives the 
information directly from its contacts at the financial institutions. 
The data are not statistically representative of the entire population 
of depository institutions in the country because the company collects 
fee data for particular institutions in specific geographical markets 
so that these institutions can compare their fees against their 
competitors. That is, surveyed institutions are self-selected into the 
sample, or are selected at the request of subscribers. To the extent 
that institutions selected in this manner differ from those which are 
not, results of the survey would not accurately reflect the industry as 
a whole. Informa Research Services collects data on over 1,500 
institutions, including a mix of banks, thrifts, credit unions, and 
Internet-only banks. The institutions from which it collects data tend 
to be large institutions that have a large percentage of the deposits 
in a particular market. Additionally, the company has access to 
individuals and information from the 100 largest commercial banks. 
Table 5 shows the mix of institutions for which Informa Research 
Services collected fee type data from 2000-2006. 

Table 5: Number of Institutions for Which Informa Research Services 
Collected Data, 2000-2006: 

Year: 2000: 
Institutions: 119; 

Year: 2001: 
Institutions: 308; 

Year: 2002: 
Institutions: 412; 

Year: 2003: 
Institutions: 947; 

Year: 2004: 
Institutions: 1,150; 

Year: 2005: 
Institutions: 1,418; 

Year: 2006: 
Institutions: 1,571. 

Source: GAO analysis of Informa Research Services data. 

[End of table] 

The summary level data Informa Research Services provided us for each 
data element included the average amount, the standard deviation, the 
minimum and maximum values, and the number of institutions for which 
data were available to calculate the averages. Informa Research 
Services also provided this summary level data by the same categories 
of institution type and size as the Moebs Services data. In addition, 
Informa Research Services provided us with data for nine specific 
geographic areas: California, Eastern United States, Florida, Michigan, 
Midwestern United States, New York, Southern United States, Texas, and 
Western United States. 

We interviewed Informa Research Services representatives to gain an 
understanding of their methodology for collecting the data and the 
processes they had in place to ensure the integrity of the data. We 
also conducted reasonableness checks on the data and identified any 
missing, erroneous, or outlying data and worked with Informa Research 
Services representatives to correct any mistakes we found. As we did 
with the Moebs Services data, we compared the average fee amounts 
Informa Research Services had calculated for selected fees for 2000, 
2001, and 2002 with the Federal Reserve's "Annual Report to the 
Congress on Retail Fees and Services of Depository Institutions." We 
found the averages to be comparable to those derived by the Federal 
Reserve and determined that the Informa Research Services data were 
sufficiently reliable for this report. To evaluate bank fee trends, for 
both the Moebs Services and Informa Research Services data, we adjusted 
the numbers for inflation to remove the effect of changes in prices. 
The inflation adjusted estimates used a base year of 2006 and Consumer 
Price Index calendar year values as the deflator. 

To determine the extent to which bank fees are contributing to 
depository institutions' revenue, we obtained data from the quarterly 
financial information (call reports) filed by depository institutions 
and maintained by the Federal Deposit Insurance Corporation (FDIC). 
From this data, we analyzed interest income, noninterest income, and 
service charges on deposit accounts for commercial banks and thrifts 
from 2000 to 2006. We analyzed the data for all institutions, as well 
as by institution type (banks versus thrifts) and institution size 
(assets greater than $1 billion, assets between $100 million and $1 
billion, and assets less than $100 million). Similarly, for credit 
unions, we reviewed the National Credit Union Administration's (NCUA) 
"Financial Performance Reports," which provided quarterly data for 
interest income, noninterest income, and fee income for all federally 
insured credit unions from 2000 to 2006. Based on past work, we have 
found the quarterly financial data maintained by FDIC and NCUA to be 
sufficiently reliable for the purposes of our reports. 

To determine the effect, if any, of changing consumer payment 
preferences and bank processing practices on the types and frequency of 
account fees incurred by consumers, we reviewed the 2004 and 2007 
Federal Reserve payment studies on noncash payment trends in the United 
States.[Footnote 39] We also reviewed data on payment trends in debit 
and credit card transactions from the EFT Data Book.[Footnote 40] In 
addition, we spoke with multiple industry experts, including bank 
representatives and consumer group representatives, such as the 
Consumer Federation of America, the Center for Responsible Lending, and 
the U.S. Public Interest Research Group to understand what practices 
banks employ to process transactions on deposit accounts, how these 
practices have changed over the past few years, and the potential 
impact these practices have had on consumers incurring fees, such as 
overdraft fees. Furthermore, we reviewed studies that analyzed 
electronic payment preferences and identified one study that used 
transaction-level data to determine how payment preferences influence 
overdraft fees.[Footnote 41] 

To determine what data are available on the characteristics of 
consumers who pay bank fees, we reviewed two studies on the topic; one 
by an academic researcher and another by a consumer group. The academic 
study used transaction-level account data and regression models to 
estimate the probability of overdrawing an account. The data included 
customer information and all transactions with associated balances from 
May-August 2003, from one small Midwestern bank.[Footnote 42] The 
second study used data collected by telephone surveys of 3,310 adults, 
who were 18 years or older, between October 2005 and January 
2006.[Footnote 43] Both studies suffer from limitations that preclude 
making inferences to the broader populations of banking customers who 
pay fees, but they represent the only relevant research at this point, 
and are suggestive of the characteristics of these customers. We also 
reviewed documentation on and interviewed officials at the FDIC about 
their ongoing study of overdraft protection programs, including the 
phase of their study in which they will review transaction-level data. 
Finally, we interviewed two academic researchers and representatives of 
eight consumer groups; five depository institutions; two software 
vendors; and four industry trade associations, including the American 
Bankers Association, Independent Community Bankers of America, 
America's Community Bankers, and the Credit Union National Association, 
to determine what research had been done on the topic. 

How Regulators Address Fees Associated with Checking and Deposit 
Accounts: 

To assess the extent that federal and selected state banking regulators 
review fees associated with checking and deposit accounts as part of 
their oversight of depository institutions, we obtained and reviewed 
examination manuals and guidance used by the five federal banking 
regulators--Federal Reserve, FDIC, NCUA, the Office of the Comptroller 
of the Currency (OCC), and the Office of Thrift Supervision (OTS)--and 
conducted interviews with agency officials. We also obtained and 
reviewed a sample of 25 compliance examination reports, on examinations 
completed during 2006, to identify how the federal regulators carried 
out examinations for compliance with Regulations DD and E. We selected 
five examination reports from each regulator based on an institution's 
asset size and geographic dispersion, in an attempt to capture a 
variety of examinations. The asset size of the institutions ranged from 
$2 million to $1.2 trillion. In addition, we obtained information on 
the regulatory efforts of six states. We selected the states based on 
recommendations from the Conferences of State Banking Supervisors, New 
York State Banking Department, and Massachusetts Division of Banks and 
to achieve geographical dispersion. The selected states were: 
California, Connecticut, Illinois, Maine, Massachusetts, and New York. 
We reviewed compliance examination manuals and guidance used by the six 
state regulators and asked specific questions to each state's 
appropriate banking officials. 

To determine the number of complaints that the regulators received on 
checking and savings accounts, in addition to complaints about fees and 
disclosures, we requested complaint data, including data on 
resolutions, for calendar years 2002 through 2006. For the complaint 
data, we obtained data on the banking products or services involved, 
the complaint category and, in some cases, the citation of the 
regulation. While our estimates of the proportions of complaints 
related to fees depend on how the banking regulators coded the subjects 
of the complaint they received, and how we combined those related to 
fees, we judge any possible variations to be slight. For the complaint 
resolution data, we obtained information about the resolution 
(outcomes) of complaints and the banking products or services involved. 
The data came from five different databases: (1) OCC's REMEDY database, 
(2) the Federal Reserve's Complaint Analysis Evaluation System and 
Reports (CAESAR), (3) FDIC's Specialized Tracking and Reporting System 
(STARS), (4) OTS' Consumer Complaint System (CCS), and (5) NCUA's 
regionally based system on complaints. We obtained data from OCC, the 
Federal Reserve, FDIC, OTS, and NCUA that covered calendar years 2002 
through 2006. For purposes of this report, we used data from the 
regulators' consumer complaint databases to describe the number of 
complaints that each regulator received related to fees and disclosures 
for checking and savings accounts, as well as complaints received by 
four major product categories--checking accounts, savings accounts, 
mortgage loans, and credit cards. With respect to the data on complaint 
resolutions, we used the regulators' data to describe the number of 
cases each regulator handled, what products consumers complained about, 
and how the regulators resolved the complaints. To assess the 
reliability of data from the five databases, we reviewed relevant 
documentation and interviewed agency officials. We also had the 
agencies produce the queries or data extracts they used to generate the 
data we requested. Also, we reviewed the related queries, data 
extracts, and the output for logical consistency. We determined these 
data to be sufficiently reliable for use in our report. 

Finally, we obtained data from each of the federal regulators on 
violations they cited against institutions for noncompliance with 
Regulation DD and Regulation E provisions. Specifically, we asked for 
data on the total number of violations that each regulator cited for 
all examined provisions of Regulations DD and E during 2002 to 2006, as 
well as for data on violations of selected disclosure provisions. The 
Regulation DD sections that we requested and obtained data on were: ï¿½ï¿½ 
230.3, 230.4, 230.8, and 230.11. The Regulation E sections that we 
requested and obtained data on were: ï¿½ï¿½ 205.4 and 205.7. We compiled 
the data and summarized the total number of violations found for all of 
the federal regulators during 2002 to 2006. We also obtained data from 
2002 through 2006 on the total number of enforcement actions that each 
regulator took against institutions for violations of all provisions of 
Regulations DD and E and the selected disclosure provisions. To assess 
the reliability of data from the five databases, we reviewed relevant 
documentation and interviewed agency officials. We also had the 
agencies produce the queries or data extracts they used to generate the 
data we requested. Also, we reviewed the related queries, data 
extracts, and the output for logical consistency. We determined these 
data to be sufficiently reliable for use in our report. Finally, we 
also requested information from each state regulator on consumer 
complaint, violation, and enforcement data pertaining to bank fees and 
disclosures, state specific bank examination processes, and any 
additional state laws pertaining to bank fees and disclosures. We did 
not receive all our requested data because some states' systems did not 
capture complaint, violation, or enforcement data related to bank fees 
and disclosures. For those states where information was available, the 
number of complaints and violations were minimal and not consistently 
reported among states. We, therefore, attributed the limited 
information on complaints, violations, and enforcement actions to state 
officials and did not assess the reliability of this data. 

Effective Disclosures of Fees to Consumers: 

To assess the extent to which consumers, upon request prior to opening 
a checking and savings account, are provided disclosures of fees and 
the conditions under which these fees are assessed, GAO employees 
visited 103 bank branches, 36 thrift branches, and 46 credit union 
branches of 154 depository institutions throughout the nation. We 
selected these institutions to ensure a mix of institution type (bank, 
thrift, and credit union) and size; however, the results cannot be 
generalized to all institutions. We reviewed the federal Truth-in- 
Savings Act (TISA) and Regulation DD, which implements TISA, to 
determine what disclosure documents depository institutions were 
required to provide to new and potential customers. Using a 
standardized, prescribed script, GAO employees posed as consumers and 
specifically requested a comprehensive fee schedule and terms and 
conditions associated with checking and savings accounts. The branches 
were located in the following cities: Atlanta, Georgia; Boston, 
Massachusetts; Chicago, Illinois; Dallas, Texas; Dayton, Ohio; Denver, 
Colorado; Huntsville, Alabama; Los Angeles, California; Norfolk, 
Virginia; San Francisco, California; Seattle, Washington; and 
Washington, D.C. 

The GAO employees visiting these branches also reviewed the 
institutions' Web sites to determine if these sites had comprehensive 
fee schedules and terms and conditions associated with checking and 
savings accounts. After both visiting branches and reviewing Web sites, 
GAO employees used standardized forms and recorded whether or not they 
were able to obtain the specific documents (examples were provided) and 
whether or not they were able to locate specific information on each 
institutions' Web site. 

To obtain information on issues related to providing consumers with 
real-time account information during debit card transactions at point- 
of-sale terminals and automated teller machines (see app. II), we 
reviewed available literature from the Federal Reserve, including a 
2004 report on the issues in providing consumers point-of-sale debit 
card fees during a transaction.[Footnote 44] We also reviewed other 
sources that described the payment processing system related to debit 
card transactions at merchants and ATMs. In addition, we conducted 
structured interviews with officials from five banks, two card 
associations, three third-party processors, four bank industry 
associations, and one merchant trade organization, and summarized our 
findings. 

We conducted this performance audit in Atlanta, Georgia; Boston, 
Massachusetts; Chicago, Illinois; Dallas, Texas; Dayton, Ohio; Denver, 
Colorado; Huntsville, Alabama; Los Angeles, California; Norfolk, 
Virginia; San Francisco, California; Seattle, Washington; and 
Washington, D.C., from January 2007 to January 2008 in accordance with 
generally accepted government auditing standards. Those standards 
require that we plan and perform the audit to obtain sufficient, 
appropriate evidence to provide a reasonable basis for our findings and 
conclusions based on our audit objectives. We believe that the evidence 
obtained provides a reasonable basis for our findings and conclusions 
based on our audit objectives. 

[End of section] 

Appendix II: Issues with Providing Consumers Real-Time Account 
Information at Point-of-Sale Terminals and ATMs When Using a Debit 
Card: 

According to debit card industry representatives we contacted, 
providing consumers with their "real-time" account balance information 
during a debit card transaction is technically feasible but presents a 
number of issues that would need resolution.[Footnote 45] These issues 
include the costs associated with upgrading merchant terminals and 
software to allow for consumers' account balances to be displayed at 
the terminals; the potential difficulty of determining a consumer's 
real-time account balance, given the different types of transactions 
that occur throughout the day; concerns over privacy and security 
raised by account balances potentially being visible to others besides 
account holders; and the increased time it would take to complete a 
transaction at merchant locations.[Footnote 46] 

Challenges Stem in Part From Existing Technology and Steps Used to 
Accomplish Transactions: 

A consumer using a debit card to make a purchase at a merchant's 
checkout counter (referred to as a point-of-sale debit transaction) has 
two options for completing the transaction: (1) entering a personal 
identification number (PIN) or (2) signing for the transaction (similar 
to a credit card transaction). The consumer is typically prompted at 
the point-of-sale terminal to choose either "debit" (in which case the 
transaction is referred to as "PIN-based") or "credit" (in which case 
the transaction is referred to as "signature-based"). Regardless of 
which option the consumer chooses, the transaction is a debit card 
transaction. PIN-and signature-based debit card transactions differ not 
only with respect to the input required from the consumer but also the 
debit networks over which the transactions are carried and the number 
and timing of steps involved in carrying out the transactions. 
Similarly, transactions initiated at ATMs can differ in how they are 
processed. Customers can make withdrawals and deposits not only at ATMs 
owned by their card-issuing institutions but also at ATMs owned by 
other depository institutions or entities.[Footnote 47] An ATM card is 
typically a dual ATM/debit card that can be used for both ATM and debit 
card transactions, both PIN-based and signature-based, at participating 
retailers.[Footnote 48] 

PIN-Based Debit Card Transactions: 

PIN-based debit card transactions are referred to as "single message" 
because the authorization--the approval to complete the transaction-- 
and settlement--the process of transmitting and reconciling payment 
orders--of the transaction take place using a single electronic 
message.[Footnote 49] As shown in figure 7, PIN-based debit card 
transactions involve a number of steps between the merchant's terminal 
and the consumer's deposit account. Generally, at the locations of 
large national merchants, after the consumer has swiped the card a 
message about the transaction is transmitted directly to the electronic 
funds transfer (EFT) network.[Footnote 50] (For other merchants, the 
transaction reaches the EFT network via the merchant's processor, also 
known as the merchant acquirer.[Footnote 51]) The message identifies 
the consumer's institution and account, the merchant, and the dollar 
amount of the purchase. The EFT network routes the transaction to the 
card issuer (or to the card issuer's processor, which then passes it to 
the card issuer). The card issuer--usually the consumer's depository 
institution--receives the message and uses the identifying information 
to verify that the account is valid, that the card has not been 
reported lost or stolen, and that there are either sufficient funds 
available in the account or the account is covered by an overdraft 
protection program (that is, the issuer covers the transaction even if 
there are insufficient funds in the account, which is also known as 
bounce protection).[Footnote 52] If these conditions are met, the 
issuer authorizes the debit transaction. Specifically, the issuer then 
debits the consumer's account and sends an authorization message to the 
EFT network, which sends it to the merchant's acquirer, which forwards 
the authorization to the merchant's terminal. The entire sequence 
typically occurs in a matter of seconds. 

Figure 7: Path of a Typical PIN-Based Debit Card Transaction: 

[See PDF for image] 

This figure is an illustration of the path of a typical PIN-based debit 
card transaction. The following path is depicted: 

* Cardholder swipes card, enters PIN at merchant site; 
* Transaction authorization request transmitted from merchant to 
merchant's acquirer (bank or authorized processor); 
* Authorization request is relayed to EFT network; 
* Authorization request passed to card issuer; 
* Card issuer posts transaction to cardholder account; 
* Card issuer's authorization response (approval/denial of transaction) 
relayed to EFT network; 
* Authorization response forwarded to merchant's acquirer; 
* Authorization response forwarded to merchant; 
* Transaction is completed. 

Sources: GAO and VISA; Art Explosion (clip art). 

[End of figure] 

Signature-Based Debit Card Transactions: 

Signature-based debit card transactions involve two electronic 
messages: one to authorize the transaction and another to settle the 
transaction between the merchant and the card issuer, at which time the 
consumer's account is debited. To conduct a signature-based debit card 
transaction, the customer typically has a VISA-or MasterCard-branded 
debit card linked to a deposit account. As shown in figure 8, after the 
card is swiped, a message about the transaction travels directly (or 
indirectly, through the merchant's acquirer) to the VISA or MasterCard 
network, from which the transaction proceeds directly (or indirectly, 
through the card-issuing institution's processor) to the card-issuing 
institution. As in a PIN-based debit card transaction, if the issuer 
verifies the relevant information, it authorizes the transaction and 
routes it back through the VISA or MasterCard network to the merchant's 
acquirer with the authorization. The merchant acquirer then forwards 
the authorization to the merchant's terminal, and the consumer signs 
the receipt.[Footnote 53] The settlement of the transaction between the 
merchant and card issuer (and the actual debiting of the consumer's 
account) occurs after a second message is sent from the merchant to the 
issuer, usually at the end of the day.[Footnote 54] 

Figure 8: Path of a Typical Signature-Based Debit Card Transaction: 

[See PDF for image] 

This figure is an illustration of the path of a typical signature-based 
debit card transaction. The following path is depicted: 

* Cardholder swipes card at merchant site; 
* Transaction authorization request transmitted from merchant to 
merchant's acquirer (bank or authorized processor); 
* Authorization request is relayed to EFT network; 
* Authorization request passed to card issuer; 
* Card issuer posts transaction to cardholder account; 
* Card issuer's authorization response (approval/denial of transaction) 
relayed to EFT network; 
* Authorization response forwarded to merchant's acquirer; 
* Authorization response forwarded to merchant; 
* Customer signs receipt and merchant completes transaction; 
* Transaction receipt deposited (occurs later that day or the next 
day); 
* Merchant's acquirer credits merchant's account; 
* Transaction transmitted electronically through EFT network for 
settlement; 
* EFT network pays merchant's bank, debits card issuer; 
* Transaction sent to card issuer; 
* Card issuer posts transaction to cardholder account; 
* Monthly statement is sent to cardholder. 

Sources: GAO and VISA; Art Explosion (clip art). 

[End of figure] 

ATM-Based Transactions: 

The steps involved in ATM transactions depend upon whether a consumer 
is using an ATM owned by the issuer of his or her card (typically 
referred to as a "proprietary" ATM), or an ATM owned by a depository 
institution or entity other than the card-issuing institution 
(typically referred in the industry as a "foreign ATM"). A foreign ATM 
transaction is processed in essentially the same manner as a PIN-based 
debit card transaction, with one exception: the ATM operator (or its 
processor) routes the transaction to the EFT network, which then routes 
it to the card issuer.[Footnote 55] The card-issuing institution 
authorizes the transaction via the EFT or debit card networks. In 
contrast, when a consumer uses a proprietary ATM, the transaction stays 
within the issuer's network and does not require the use of an external 
EFT network (fig. 9). Card issuers that are depository institutions-- 
such as banks--may have the capability of providing a notice to their 
customers at a proprietary ATM that a withdrawal will result in the 
account being overdrawn and then allow the customer to decide whether 
or not to proceed with the transaction. Officials from one of the banks 
that we spoke with stated that they employed this capability at their 
proprietary ATMs. 

Figure 9: Path of a Typical Debit Card Transaction at an ATM: 

[See PDF for image] 

This figure is an illustration of the path of a typical debit card 
transaction at an ATM. The following path is depicted: 

* Cardholder initiates ATM cash withdrawal request; 
* ATM acquiring bank routes authorization request to other networks; 
* Authorization request passed to card issuer; 
* Card issuer post transaction to cardholder account; 
* Card issuer's authorization response (approval/denial of request) 
routed to other networks; 
* Authorization response forwarded to ATM acquiring bank; 
* ATM acquiring bank ATM dispenses cash (if request was approved); 
* Cardholder received cash. 

Intra-bank transactions skip the use of other networks. Retail banks 
handle their own ATM transactions and do not utilize an EFT network-
known as on-us activity. 

Sources: GAO and VISA; Art Explosion (clip art). 

[End of figure] 

Point-of-Sale Terminal and Software Upgrade Challenges: 

As of March 2007, there were over 5 million point-of-sale terminals in 
the United States.[Footnote 56] According to industry representatives, 
most point-of-sale terminals are not currently equipped to display a 
consumer's checking account balance and, in these cases, merchants 
would either need to replace the terminal entirely or upgrade the 
software in the terminal. Industry representatives were hesitant to 
estimate the costs associated with this because the number of terminals 
that would need to be replaced versus those that would only need a 
software upgrade is not currently known. The industry representatives 
explained that the cost of upgrading the point-of-sale terminals to 
display account balance information would be primarily borne by 
merchants. 

In addition to upgrading point-of-sales terminals, industry 
representatives identified the following other costs that would be 
incurred: 

* Upgrading software used by the EFT networks and depository 
institutions in order to transmit balance information from the card- 
issuing institution to the merchant. As described above, currently a 
debit card transaction is authorized by verifying a consumer's checking 
account balance and sending back an approval or denial message--which 
does not include account balance information. 

* Increasing the communications infrastructure of the EFT networks to 
allow for additional message traffic, namely consumers' acceptances or 
declinations of a transaction once they have viewed their account 
balances. These messages would constitute a second message from the 
point-of-sale terminal to the card-issuing institution for each 
transaction. 

An associated cost with this process would be training employees who 
work at the terminals how to handle these debit card transactions and 
the cost of additional time to accomplish transactions, which we 
discuss here. 

With respect to providing account balance information at foreign ATMs, 
one industry representative explained that this would require all 
entities involved in ATM transactions (banks, ATM operators, ATM 
networks, and the Federal Reserve) to agree on a common message format 
to display balances, as well as a new transaction set for ATMs that 
would provide consumers with the option not to proceed with the 
transaction once they saw their balances. Two industry representatives 
we spoke with said that it could take a number of years for all of the 
entities involved in ATM transactions to agree on a standard format. 

Challenges in Providing Accurate Real-Time Account Balance Information: 

Debit card industry representatives explained that the account balance 
that is used to authorize a debit card transaction--and which would be 
displayed to the consumer--may not necessarily reflect the true balance 
in the consumer's checking account at the time of the transaction. One 
of the reasons for this is that, while a depository institution may 
attempt to get as close to a real-time balance as possible, it may be 
unable to capture all of the transactions associated with the account 
as they occur throughout the day. For example, one depository 
institution official told us that it updates its customers' account 
balances throughout each day; it refers to these updated balances as a 
customer's "available balance." This available balance is updated 
throughout the day to reflect debit card transactions at point-of-sale 
terminals and ATMs, as well as other transactions such as those that 
occur online. This balance, however, might not take into account checks 
that will be clearing that day, deposits made at a foreign ATM, or some 
transactions that would come in via the Automated Clearing House 
(ACH).[Footnote 57] An example of the latter is a transaction in which 
a consumer electronically transfers funds from a mutual fund to a 
checking account. The net result of the inability to provide consumers 
with a real-time balance is that the consumer may be presented with a 
balance that is not reflective of all the transactions that will be 
processed as of that day. 

Another reason why a depository institution may be unable to provide 
consumers with a real-time balance is that the institution may not 
update balances throughout the day. Most institutions "batch process" 
transactions at night, then post the revised customer account balances. 
The following day, the institutions update the customer's account 
balance for debit card authorizations and certain other transactions 
that occur throughout the day. However, according to a card 
association, some small banks only post the account balance from the 
batch process to the customer's account and do not update account 
balances as transactions occur throughout the day. 

Finally, if a depository institution uses a third-party processor to 
authorize debit card transactions, the balance that the third-party 
processor uses may also not reflect all the transactions that occur 
throughout the day. For example, transactions involving a bank teller, 
such as deposits or withdrawals, do not require a third-party processor 
to authorize transactions, thus the processor would not be able to 
update its balance to reflect these transactions. 

Challenges Associated with Privacy and Security Issues: 

One of the major concerns raised by the debit card industry 
representatives we spoke with regarding providing consumers with real- 
time balances at point-of-sale terminals was a concern over privacy. 
Unlike ATM transactions, which are transactions between a consumer and 
the machine, under which consumers tend to be cognizant of the need for 
privacy, point-of-sale terminals are generally more visible to others, 
according to these representatives. For example, the balance on a point-
of-sale terminal could be visible to the cashier and customers in line 
at a merchant location. In addition, at restaurants, the waiter or 
other staff could view this information out of sight of the consumer. 
The industry representatives stated that most consumers would likely be 
uncomfortable having their account balance information visible to 
others. 

Another related concern raised by these representatives was one of 
security, in that cashiers or possibly other customers might be able to 
view a consumer's account balance. Thus, the industry representatives 
stated that providing balances at a point-of-sale terminal could 
increase the risk of fraud. One industry representative told us that 
providing a balance at a point-of-sale terminal would be a departure 
from current privacy and security approaches with point-of-sale 
transactions. 

Challenges Related to Increased Transaction Processing Time: 

Industry representatives explained that allowing consumers to accept or 
decline a transaction once they have viewed their balance would likely 
increase the time it takes to get customers through a check-out line. 
According to a retail merchant's trade association that we contacted, 
merchants depend on moving customers quickly through check-out lines. 
The retail merchants' trade association stated that adding a step in 
the check-out process would add time, resulting in lower sales volume 
per unit of time for each cashier, and potentially greater costs 
associated with adding cashiers to maintain the same volume of 
transactions. 

Industry officials also stated that there were some circumstances 
during a point-of-sale transaction for which providing consumers with 
real-time balances would not be possible or would be problematic. For 
example, during "stand-in" situations, such as when a card issuer's 
systems are offline for maintenance, EFT networks review and authorize 
(or deny) transactions in accordance with instructions from the issuer. 
The networks would not have real-time access to account balance 
information when the issuer's system is down. Another example would be 
merchants, such as fast food outlets, who perform quick swipes of debit 
cards for low dollar transactions. At the time of the swipe, the 
merchant has not actually routed the transaction to the card issuer and 
thus has not yet accessed the consumer's account balance. In these 
cases, the merchant has accepted the risk of not being paid if there 
are insufficient funds in the account in order to move customers 
through lines more quickly. Finally, one industry representative 
questioned how the industry would be able to provide consumers with 
real-time balances if consumers make debit card purchases online or 
over the telephone. 

Other Options Short of Providing Real-Time Account Balance Information 
at Point-of-Sale Terminals or ATMs Have Their Challenges and 
Limitations: 

There are other options short of providing real-time account balances 
at point-of-sale terminals and ATMs that might assist in warning 
consumers of a potential overdraft, but each of these options has 
challenges and limitations. For example, one option involves sending a 
warning with the authorization message instead of a real-time balance. 
The warning would indicate that the transaction could result in an 
overdraft. As indicated above, one of the banks we met with currently 
provides a similar warning on its proprietary ATMs. The consumer would 
then have the option to accept or deny the transaction. This option 
would require two messages to complete a debit card transaction rather 
than one message. Further, under this option, depository institutions 
would still be unable to base their authorization decisions on a real- 
time balance because of the various types of transactions that may 
occur in a day, and thus no warning message would be triggered--yet 
once the institution reconciles all accounts, a consumer could be faced 
with an overdraft fee. This option would also likely slow down 
transactions and raise costs for merchants. However, unlike providing 
real-time account balance information at a point-of-sale terminal, this 
option would not present privacy or security concerns because the 
balance in the consumer's account would not be transmitted. 

Another option short of providing consumers with real-time account 
balance information is printing a consumer's available balance on a 
receipt after a transaction has been completed. This is currently 
possible when consumers use their card issuers' proprietary ATMs and 
some foreign ATMs, according to industry representatives. Under this 
option, the consumer would not receive a warning that the transaction 
could subject them to an overdraft, and they would not have a choice to 
accept or decline the transaction. Further, under this option, the 
consumer would not be provided his or her account balance until after 
the transaction was completed.[Footnote 58] However, once consumers 
obtained their balance, they could change their spending behavior to 
avoid a fee on subsequent transactions. This option would entail 
certain costs for upgrading terminals or software in order to print the 
consumer's real-time balance on the receipt, as well as costs of 
upgrading software to transmit the real-time balance from the card- 
issuing institution to the merchant terminal. The option would not 
address an institution's ability to provide an actual real-time balance 
and would introduce privacy and security concerns because if the 
receipt were inadvertently dropped, others could view the balance. 
However, this option would not slow down the time it takes to complete 
a transaction because the consumer would not be given the option of 
accepting or declining a transaction. 

Finally, industry representatives noted that consumers currently have a 
number of ways to check their account balances (e.g., by phone and 
Internet), which might help them avoid overdraft fees. According to 
Federal Reserve officials, this would require "near-time" processing 
and a system that synchronizes the balance information reported through 
the phone and Internet banking systems with the balance information 
that is transmitted by the institution to the ATM/EFT network. Three of 
the four large banks we spoke with stated that their customers 
currently have the ability to sign up for a feature in which the bank 
will send a message to the consumers' e-mail accounts or cell phones-- 
"E-alerts"--when their balances reach a designated "threshold" amount. 
Under this option, consumers receiving an E-alert could change their 
spending patterns to avoid incurring an overdraft situation and fees. 
Table 6 compares the E-alert option with other potential options for 
warning consumers that they may incur an overdraft fee and the 
associated issues surrounding the particular option. 

Table 6: Issues Raised by Options for Warning Consumers That They May 
Incur an Overdraft When Using a Debit Card at a Point-of-Sale Terminal 
or ATM: 

Options: Disclosure of real-time balance at point-of-sale terminal or 
ATM; 
Issue: Merchant hardware: upgrades: 
* Replace or reprogram terminals to display real-time balance; 
Issue: Software or communications infrastructure upgrades: 
* Reprogram to allow balances to be sent with authorization message; 
* Increase communications infrastructure to allow for two messages to 
complete each transaction; 
Issue: Real-time balance accuracy: 
* Unable to ensure real-time balance; 
Issue: Privacy and security: concerns: 
* Potential increase in risk of fraud if balance viewed by cashier or 
others; 
Issue: Speed of transaction: 
* Transaction slowed to allow consumer to accept or decline. 

Options: Notice of warning of overdraft and fee associated with 
overdraft disclosed at point-of-sale terminal or ATM; 
Issue: Merchant hardware: upgrades: 
* Replace or reprogram terminals to display warning; 
Issue: Software or communications infrastructure upgrades: 
* Reprogram to allow warning to be sent with authorization message; 
* Increase communications infrastructure to allow for two messages to 
complete each transaction; 
Issue: Real-time balance accuracy: 
* Unable to ensure real-time balance; 
Issue: Privacy and security: concerns: 
* None; 
Issue: Speed of transaction: 
* Transaction slowed to allow consumer to accept or decline. 

Options: Printing of available balance on receipt after transaction 
completed at point-of-sale terminal or ATM; 
Issue: Merchant hardware: upgrades: 
* Replace or reprogram terminals to print real-time balance; 
Issue: Software or communications infrastructure upgrades: 
* Reprogram to allow balances to be sent with authorization message; 
Issue: Real-time balance accuracy: 
* Unable to ensure real-time balance; 
Issue: Privacy and security: concerns: 
* Potential increase in risk of fraud if receipt is lost, then found by 
others; 
Issue: Speed of transaction: 
* None. 

Options: E-alert to consumers' e-mail account or cell phone that their 
available balance is low; 
Issue: Merchant hardware: upgrades: 
* None; 
Issue: Software or communications infrastructure upgrades: 
* Program to allow alerts to be sent to e-mail or cell phone; 
Issue: Real-time balance accuracy: 
* Unable to ensure real-time balance; 
Issue: Privacy and security: concerns: 
* None; 
Issue: Speed of transaction: 
* None. 

Source: GAO. 

[End of table] 

[End of section] 

Appendix III: Analyses of Select Bank Fees Data: 

Using the methodology we noted earlier, we analyzed select bank fee 
data obtained from two firms, Moebs Services and Informa Research 
Services. Some bank fees have increased since 2000, while a few, such 
as monthly fees, have decreased.[Footnote 59] As noted earlier in the 
report, we analyzed data in aggregate for all depository institutions 
and also by institution type and size. According to data we obtained, 
banks and thrifts charged more than credit unions for almost all select 
fees analyzed, and larger institutions charged higher fees than 
midsized and smaller institutions. We found slight variations in fees 
charged by region, with certain regions charging less than the national 
average for some select bank fees analyzed. For example, California and 
the Western United States consistently charged less than the national 
average for almost all select fees analyzed according to the Informa 
Research Services data. 

For both the Moebs Services and Informa Research Services data, banks 
and thrifts were combined into one institution type category, with 
credit unions as the other institution type. For both sets of data, the 
following asset size categories were used: 

* small institutions had assets less than $100 million, 

* midsized institutions had assets between $100 million and $1 billion, 
and: 

* large institutions had assets greater than $1 billion. 

For the Moebs Services data, we computed average amounts ourselves, but 
statistics were provided to us for the Informa Research Services data. 
We identified all instances in which the information presented was 
based on data provided by less than 30 institutions and did not include 
those instances in this report because averages based on a small number 
of institutions may be unreliable.[Footnote 60] The information 
presented for the Moebs Services data is statistically representative 
of the entire banking and credit union industry, but the Informa 
Research Services data is not. For additional information on the select 
fees analyzed and the number of institutions surveyed, see appendix I. 

Analysis of Moebs Services Data: 

Table 7 provides a detailed comparison of the Moebs Services data for 
all institutions for select bank fees for the 8-year period, 2000-2007. 

Table 7: Average Fees, All Institutions, 2000-2007: 

Type of fee: Insufficient funds; 
Year: 2000: $21.77; 
Year: 2001: $22.43; 
Year: 2002: $22.90; 
Year: 2003: $23.57; 
Year: 2004: $24.15; 
Year: 2005: $24.52; 
Year: 2006: $24.02; 
Year: 2007: $24.18. 

Type of fee: Overdraft; 
Year: 2000: $20.83; 
Year: 2001: $22.10; 
Year: 2002: $22.88; 
Year: 2003: $23.93; 
Year: 2004: $24.40; 
Year: 2005: $24.65; 
Year: 2006: $23.69; 
Year: 2007: $23.13. 

Type of fee: Returns of deposited items; 
Year: 2000: $8.28; 
Year: 2001: $8.24; 
Year: 2002: $9.34; 
Year: 2003: $9.66; 
Year: 2004: $9.81; 
Year: 2005: $9.93; 
Year: 2006: $11.28; 
Year: 2007: $12.31. 

Type of fee: Stop payment order; 
Year: 2000: $16.66; 
Year: 2001: $17.91; 
Year: 2002: $17.93; 
Year: 2003: $18.58; 
Year: 2004: $19.09; 
Year: 2005: $19.53; 
Year: 2006: $19.28; 
Year: 2007: $19.41. 

Type of fee: Foreign ATM; 
Year: 2000: $0.92; 
Year: 2001: $0.96; 
Year: 2002: $0.81; 
Year: 2003: $0.79; 
Year: 2004: $0.83; 
Year: 2005: $0.84; 
Year: 2006: $0.61; 
Year: 2007: $0.69. 

Type of fee: ATM surcharge; 
Year: 2000: $0.95; 
Year: 2001: $1.23; 
Year: 2002: $1.29; 
Year: 2003: $1.41; 
Year: 2004: $1.37; 
Year: 2005: $1.40; 
Year: 2006: $1.34; 
Year: 2007: $1.29. 

Type of fee: Overdraft transfer fee (link to deposit account); 
Year: 2000: Data not available; 
Year: 2001: Data not available; 
Year: 2002: Data not available; 
Year: 2003: $2.75; 
Year: 2004: $2.86; 
Year: 2005: $2.91; 
Year: 2006: $2.81; 
Year: 2007: $2.69. 

Type of fee: Overdraft transfer fee (link to line of credit); 
Year: 2000: Data not available; 
Year: 2001: Data not available; 
Year: 2002: Data not available; 
Year: 2003: $1.23; 
Year: 2004: $1.37; 
Year: 2005: $1.10; 
Year: 2006: $1.86; 
Year: 2007: $1.49. 

Type of fee: ATM annual fee; 
Year: 2000: $1.37; 
Year: 2001: $0.92; 
Year: 2002: $1.32; 
Year: 2003: $1.14; 
Year: 2004: Data not available; 
Year: 2005: Data not available; 
Year: 2006: Data not available; 
Year: 2007: Data not available. 

Type of fee: Debit card annual fee; 
Year: 2000: Data not available; 
Year: 2001: $0.94; 
Year: 2002: $0.87; 
Year: 2003: $1.00; 
Year: 2004: Data not available; 
Year: 2005: Data not available; 
Year: 2006: Data not available; 
Year: 2007: Data not available. 

Source: GAO analysis of Moebs Services data. 

Note: Fees are adjusted for inflation and reported in 2006 dollars. 

[End of table] 

Analysis of Informa Research Services Data: 

Table 8 provides a detailed comparison of the Informa Research Services 
data for all institutions for select bank fees for the 7-year period, 
2000-2006. The data is presented for a variety of types of checking and 
savings accounts.[Footnote 61] 

Table 8: Average Fees, All Institutions, 2000-2006: 

Type of fee: Insufficient funds; 
Year: 2000: Data not available; 
Year: 2001: $27.78; 
Year: 2002: $27.91; 
Year: 2003: $26.94; 
Year: 2004: $26.77; 
Year: 2005: $26.56; 
Year: 2006: $26.07. 

Type of fee: Overdraft; 
Year: 2000: Data not available; 
Year: 2001: $28.31; 
Year: 2002: $28.19; 
Year: 2003: $27.83; 
Year: 2004: $27.70; 
Year: 2005: $27.37; 
Year: 2006: $26.74. 

Type of fee: Returns of deposited items; 
Year: 2000: Data not available; 
Year: 2001: $6.41; 
Year: 2002: $6.38; 
Year: 2003: $6.68; 
Year: 2004: $6.62; 
Year: 2005: $6.45; 
Year: 2006: $6.45. 

Type of fee: Stop payment order; 
Year: 2000: Data not available; 
Year: 2001: $25.98; 
Year: 2002: $25.70; 
Year: 2003: $24.80; 
Year: 2004: $25.16; 
Year: 2005: $24.89; 
Year: 2006: $24.73. 

Type of fee: Foreign ATM; 
Year: 2000: $1.83; 
Year: 2001: $1.48; 
Year: 2002: $1.37; 
Year: 2003: $1.29; 
Year: 2004: $1.20; 
Year: 2005: $1.17; 
Year: 2006: $1.14. 

Type of fee: ATM surcharge; 
Year: 2000: $1.70; 
Year: 2001: $1.64; 
Year: 2002: $1.61; 
Year: 2003: $1.57; 
Year: 2004: $1.57; 
Year: 2005: $1.58; 
Year: 2006: $1.60. 

Type of fee: Overdraft transfer fee; 
Year: 2000: $5.64; 
Year: 2001: $4.46; 
Year: 2002: $4.28; 
Year: 2003: $4.02; 
Year: 2004: $4.15; 
Year: 2005: $4.38; 
Year: 2006: $4.31. 

Type of fee: ATM annual fee; 
Year: 2000: [Empty]; 
Year: 2001: $1.22; 
Year: 2002: $1.07; 
Year: 2003: $0.80; 
Year: 2004: $0.83; 
Year: 2005: $0.62; 
Year: 2006: $0.44. 

Type of fee: Debit card annual fee; 
Year: 2000: [Empty]; 
Year: 2001: $0.65; 
Year: 2002: $0.58; 
Year: 2003: $0.59; 
Year: 2004: $0.49; 
Year: 2005: $0.94; 
Year: 2006: $0.74. 

Type of fee: Minimum balance to open a noninterest checking account; 
Year: 2000: Data not available; 
Year: 2001: $76.43; 
Year: 2002: $75.47; 
Year: 2003: $63.26; 
Year: 2004: $57.76; 
Year: 2005: $57.38; 
Year: 2006: $55.09. 

Type of fee: Minimum balance to waive a noninterest checking account 
fee; 
Year: 2000: $749.93; 
Year: 2001: $838.85; 
Year: 2002: $832.91; 
Year: 2003: $796.55; 
Year: 2004: $771.00; 
Year: 2005: $695.74; 
Year: 2006: $670.03. 

Type of fee: Monthly maintenance fees; Regular interest checking; 
Year: 2000: $12.31; 
Year: 2001: $10.75; 
Year: 2002: $10.27; 
Year: 2003: $9.20; 
Year: 2004: $8.66; 
Year: 2005: $8.10; 
Year: 2006: $7.68. 

Type of fee: Monthly maintenance fees; Noninterest checking, balance; 
Year: 2000: $8.51; 
Year: 2001: $9.73; 
Year: 2002: $9.40; 
Year: 2003: $9.10; 
Year: 2004: $9.03; 
Year: 2005: $8.73; 
Year: 2006: $8.44. 

Type of fee: Monthly maintenance fees; Noninterest checking, flat fee; 
Year: 2000: $6.81; 
Year: 2001: $6.29; 
Year: 2002: $5.48; 
Year: 2003: $5.02; 
Year: 2004: $5.24; 
Year: 2005: $5.49; 
Year: 2006: $5.41. 

Type of fee: Monthly maintenance fees; Senior checking; 
Year: 2000: $13.99; 
Year: 2001: $6.99; 
Year: 2002: $6.28; 
Year: 2003: $5.38; 
Year: 2004: $4.87; 
Year: 2005: $4.80; 
Year: 2006: $4.45. 

Type of fee: Monthly maintenance fees; Statement/passbook savings; 
Year: 2000: $5.58; 
Year: 2001: $3.91; 
Year: 2002: $3.80; 
Year: 2003: $3.16; 
Year: 2004: $2.82; 
Year: 2005: $2.80; 
Year: 2006: $2.67. 

Source: GAO analysis of Informa Research Services data. 

Note: Fees are adjusted for inflation and reported in 2006 dollars. 

[End of table] 

[End of section] 

Appendix IV: Resolution of Complaints Related to Fees and Disclosures 
Associated with Checking and Savings Accounts: 

In analyzing the resolution of complaints for fees and disclosures 
associated with checking and savings accounts, we found similar 
outcomes among complaints received by the Federal Reserve, FDIC, OCC, 
and OTS.[Footnote 62] As shown in figure 10, these federal regulators 
reported resolving complaints in the following order of decreasing 
frequency: 

1. Finding that the bank was correct. This included instances in which 
the regulator determined that the financial institution did not err in 
how it administered its products and/or services to the consumer. 

2. Providing the consumer with additional information without any 
determination of error. This included instances in which the regulator 
told the consumer that the dispute was better handled by a court or 
where the regulator determined that rather than wrongdoing there was 
miscommunication between the bank and its customer. 

3. Other, including instances in which the consumer did not provide 
information needed by the regulator or withdrew the complaint. 

4. Determining that the bank was in error. This included instances in 
which the regulator determined that the bank erred in administering its 
products and/or services to the consumer (errors could include 
violations of regulations). 

5. Complaint in litigation, in which the regulator tabled the complaint 
because it was involved in legal proceedings. This includes instances 
in which the regulator can not intervene because the issues raised in 
the complaint are the subject of either past, current, or pending 
litigation. 

Figure 10: Complaint Resolutions Made by Federal Regulators: 

[See PDF for image] 

This figure contains four vertical stacked bar graphs, one each for 
complaint resolutions for OCC, FDIC, Federal Reserve, and OTS. Each 
graph is formatted as follows: the vertical axis of the graph 
represents percentage from 0 to 100. The horizontal axis of the graph 
represents years from 2002 to 2006. The stacked bars are a composite of 
complaint resolutions in the following five categories: bank error; 
bank correct; consumer provided information; complaint in litigation; 
other. 

For OCC, the majority of complaint resolutions for each year concern 
consumer provided information. 

For FDIC, Federal Reserve, and OTS, the majority of complaint 
resolutions for each year concern bank correct. 

Sources: GAO analysis of OCC, FDIC, Federal Reserve, and OTS data. 

[End of figure] 

[End of section] 

Appendix V: Comments from the Federal Deposit Insurance Corporation: 

Federal Deposit Insurance Corporation: 
Division of Supervision and Consumer Protection: 
550 17th Street NW: 
Washington, D.C. 20429-9990: 

January 25, 2008: 

Mr. David Wood, Director: 
Financial Markets and Community Investments: 
U.S. Government Accountability Office: 
441 G Street, NW: 
Washington, D.C. 20548: 

Dear Mr. Wood: 

Thank you for the opportunity to review and comment on the Government 
Accountability Office's (GAO) draft report entitled, Bank Fees: Federal 
Banking Regulators Could Better Ensure That Consumers Have Required 
Disclosure Documents Prior to Opening Checking or Savings Accounts (GAO-
08-281). The report reviews the trends in the types and amounts of fees 
charged to deposit accounts since 2000; how federal banking regulators 
address such fees in their oversight of depository institutions; and 
the extent that consumers are able to obtain account terms and 
conditions and disclosures of fees upon request prior to opening an 
account. 

The GAO found, when its staff visited branches of numerous 
institutions, that many did not provide complete information about 
account terms and conditions. The issue is of particular concern to the 
Federal Deposit Insurance Corporation (FDIC). We are committed to 
ensuring that this information is available to consumers. In response 
to the finding, by June 30, 2008, the FDIC will provide further 
instruction to state non-member banks about their ongoing 
responsibility to provide accurate disclosures to consumers upon 
request. The FDIC examiners use the Federal Financial Institution 
Examination Council (FFIEC) Joint Examination Procedures for Regulation 
DD, which covers this area. The FDIC will also provide further 
instruction to examiners by this date about the importance of this 
requirement in light of the GAO's findings. In addition, the FDIC will 
discuss this issue with the other FFIEC agencies. 

Thank you for your efforts and if you have any questions or need 
additional follow-up information, please do not hesitate to contact us. 

Sincerely, 

Signed by: 

Sandra L. Thompson: 
Director: 

[End of section] 

Appendix VI Comments from the Board of Governors of the Federal Reserve 
System: 

Board Of Governors: 
Of The Federal Reserve System:
Washington, D. C. 20551: 

January 17, 2008: 

Mr. David G. Wood: 
Director: 
Financial Markets and Community Investments: 
Government Accountability Office: 
Washington, D.C. 20548: 

Dear Mr. Wood: 

The Federal Reserve appreciates the opportunity to comment on the draft 
report entitled "Federal Banking Regulators Could Better Ensure that 
Consumers Have Required Disclosure Documents Prior to Opening Checking 
or Savings Accounts," GAO-08-281. The draft report recommends that the 
Federal Reserve and the other federal banking regulators (Federal 
Deposit Insurance Corporation, Office of the Comptroller of the 
Currency, Office of Thrift Supervision, and National Credit Union 
Administration) "...assess the extent to which consumers receive 
specific disclosure documents on fees and account terms and conditions 
associated with demand and deposit accounts prior to opening an 
account, and incorporate steps as needed into their oversight of 
institutions' compliance with the Truth in Savings Act to assure that 
disclosures continue to be made available." 

The Federal Reserve takes seriously its commitment to ensuring that 
institutions under our supervision comply with the disclosure 
requirements of Regulation DD, and that the rights of consumers are 
protected. We believe it is essential that consumers have the benefit 
of deposit account fee and term disclosures to help them make informed 
choices and to facilitate comparison shopping. Therefore, our 
supervisory processes should be not only rigorous and effective, but 
fully responsive to the purposes of the Truth in Savings Act and 
Regulation DD. Accordingly, we concur with the GAO's recommendation and 
will work closely with the other agencies represented on the Federal 
Financial Institution Examination Council to improve and strengthen the 
current interagency Regulation DD examination procedures to better 
ensure that institutions are providing disclosures upon request, as 
required. In addition, the Federal Reserve will pursue other 
approaches, such as expanded industry outreach activities, to 
facilitate compliance and to promote awareness of these important 
regulatory requirements. 

Again, we appreciate the opportunity to review and comment on the draft 
report. We also appreciate the efforts and professionalism of the GAO's 
review team in conducting this study. 

Sincerely, 

Signed by: 

Sandra F. Braunstein: 
Director: 
Division Of Consumer And Community Affairs: 

[End of section] 

Appendix VII: Comments from the National Credit Union Administration: 

National Credit Union Administration: 
Executive Director: 
1775 Duke Street: 
Alexandria, VA 22314-3428: 
703-518-6320: 

January 22, 2008: 

Mr. David Wood: 
Director: 
Financial Markets and Community Reinvestment: 
U.S. Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Dear Mr. Wood: 

We have received and reviewed your draft report "Bank Fees: Federal 
Banking Regulators Could Better Ensure That Consumers Have Required 
Disclosure Documents Prior to Opening Checking or Savings Accounts" 
dated January 2008 (Bank Fees Report). GAO recommends in the report 
"the federal banking regulators assess the extent to which customers 
receive disclosures on fees and account terms and conditions prior to 
opening an account and incorporate into their oversight as needed steps 
to ensure that disclosures continue to be made available". 

NCUA will implement GAO's recommendation in the Bank Fees Report 
through our risk focused examination and supervision program. Following 
the release of your final report, NCUA will also issue a Letter to 
Credit Unions reiterating the disclosure requirements for fees and 
account terms contained in Part 707 of the NCUA Rules and Regulations - 
Truth in Savings. The Letter to Credit Unions will address the credit 
union's board of directors' responsibility to ensure ongoing compliance 
with TIS disclosure requirements. 

NCUA will also work with the FFIEC agencies to revise the FFIEC's 
Regulation DO examination procedures to address GAO's recommendation. 
FFIEC interagency examination procedures provide a consistent 
examination and supervision approach across all federally insured 
deposit institutions benefiting both consumers and federal financial 
institutions. 

Sincerely, 

Signed by: 

J. Leonard Skiles: 
Executive Director: 

[End of section] 

Appendix VIII: Comments from Office of the Comptroller of the Currency: 

Comptroller of the Currency: 
Administrator of National Banks: 
Washington, DC 20219: 

January 22, 2008: 

Mr. David G. Wood: 
Director, Financial Markets and Community Investment: 
United States Government Accountability Office: 
Washington, DC 20548: 

Dear Mr. Wood: 

We have received and reviewed your draft report titled "Bank Fees: 
Federal Banking Regulators Could Better Ensure That Consumers Have 
Required Disclosure Documents Prior to Opening Checking or Savings 
Accounts." Your report responds to a Congressional request for 
information concerning issues related to the fees that consumers pay on 
their checking and savings accounts. 

You found that: (1) some fees have increased since 2000 and 
institutions are reporting increasing revenues from fees; (2) 
regulatory oversight focuses on depository institutions' compliance 
with federal disclosure requirements; and (3) despite regulations and 
examinations, GAO experienced difficulty obtaining fee information. You 
conclude that this circumstance would make it difficult for consumers 
to make meaningful comparisons among institutions when choosing a 
depository institution in which to open an account. We agree. 

As you recommend, we will work with the other agencies to strengthen 
our examination procedures as soon as feasible by incorporating a means 
of assessing the extent to which consumers receive specific disclosure 
documents on fees and account terms and conditions associated with 
demand and deposit accounts prior to opening an account. In addition, 
we will incorporate steps as needed into our oversight of institutions' 
compliance with the Truth in Savings Act to assure that disclosures 
continue to be made available. 

We appreciate the opportunity to comment on the draft report. 

Sincerely, 

Signed by: 

John C. Dugan: 
Comptroller of the Currency: 

[End of section] 

Appendix IX: Comments from the Office of Thrift Supervision: 

Office of Thrift Supervision: 
Department of the Treasury: 
Scott M. Polakoff: 
Senior Deputy Director & Chief Operating Officer: 
1700 G Street, NW: 
Washington, DC 20552: 
(202) 906-6853: 

January 23, 2008: 

Mr. David G. Woods: 
Director, Financial Markets and Community Investment: 
U. S. Government Accountability Office: 
441 G Street, N.W., RM-2A32: 
Washington, DC 20548: 

Dear Mr. Woods: 

The Office of Thrift Supervision (OTS) has received and reviewed the 
draft report, Bank Fees: Federal Banking Regulators Could Better Ensure 
That Consumers Have Required Disclosure Documents Prior to Opening 
Checking or Savings Accounts. Thank you for the opportunity for OTS to 
review and comment on the draft report. 

The draft report recommends that the federal banking regulators "assess 
the extent to which consumers receive specific disclosure documents on 
fees and account terms and conditions associated with demand and 
deposit accounts prior to opening an account, and incorporate steps as 
needed into their oversight of institutions' compliance with the Truth 
In Savings Act (TISA) to assure that disclosures continue to be made 
available." 

Upon consideration of the draft report, OTS supports the 
recommendation. Given the existence of interagency examination 
procedures to determine compliance with TISA, OTS will coordinate and 
work with the other members of the Federal Financial Institutions 
Examination Council (FFIEC). 

OTS appreciates GAO's efforts in developing this report and the 
opportunity to comment on the recommendation. The agency found its 
interactions with the GAO review team both useful and informative. 

Sincerely, 

Signed by: 

Scott M. Polakoff: 
Senior Deputy Director & Chief Operating Officer: 

[End of section] 

Appendix X: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

David G. Wood, (202) 512-6878, or [email protected]. 

Staff Acknowledgments: 

In addition to the individual named above, Harry Medina, Assistant 
Director; Lisa Bell; Emily Chalmers; Beth Faraguna; Cynthia Grant; 
Stuart Kaufman; John Martin; Marc Molino; Josï¿½ R. Peï¿½a; Carl Ramirez; 
Linda Rego; and Michelle Zapata made key contributions to this report. 

[End of section] 

Footnotes: 

[1] Checking accounts at credit unions are called share draft accounts. 
For purposes of this report, the use of the term "checking accounts" 
includes share draft accounts. 

[2] 12 C.F.R. ï¿½ 230.4(b)(4) and Pub. L. No. 102-242, title II, subtitle 
F, 105 Stat. 2334 (Dec. 19, 1991), codified at 12 U.S.C. ï¿½ï¿½ 4301-4313. 

[3] 12 C.F.R. Part 205 and Pub. L. No. 90-321, title IX, as added Pub. 
L. No. 95-630, title XX, ï¿½ 2001, 92 Stat. 3728 (Nov. 10, 1978), 
codified at 15 U.S.C. ï¿½ï¿½ 1693, 1693a-1693r. 

[4] The Federal Reserve has responsibility for state-chartered banks 
that are members of the Federal Reserve System, while the Federal 
Deposit Insurance Corporation (FDIC) oversees state-chartered banks 
with federally insured deposits that are not members of the Federal 
Reserve System. National banks are overseen by the Department of the 
Treasury Office of the Comptroller of the Currency (OCC), while its 
Office of Thrift Supervision (OTS) oversees federally chartered and 
state-chartered savings associations with federally insured deposits. 
The National Credit Union Administration (NCUA) oversees federally 
chartered and state-chartered credit unions whose member accounts are 
federally insured. State-chartered banks, thrifts, and credit unions 
are also subject to supervision by the state in which they are 
chartered. This report uses the term "federal banking regulators" to 
refer collectively to the Federal Reserve, FDIC, NCUA, OCC, and OTS. 

[5] 70 Fed. Reg. 9127 (Feb. 24, 2005) (OCC, Federal Reserve, FDIC, and 
NCUA); 70 Fed. Reg. 8428 (Feb. 18, 2005) (OTS). We refer to the joint 
guidance and OTS guidance collectively as "interagency guidance." 

[6] The six states are California, Connecticut, Illinois, Maine, 
Massachusetts, and New York. We selected these states to illustrate a 
variety of regulatory efforts and for geographical dispersion. 

[7] We reviewed five examinations from each regulator that were 
selected for dispersion by asset size of the institution and by 
geography. These examinations, however, are not representative of all 
federal bank regulators' examinations. 

[8] GAO employees followed a standard script and process. If the first 
or second bank employee encountered did not provide the requested 
information, or if the GAO employee was instructed to wait, and a 
period of 10 minutes or more elapsed without the information being 
provided, we characterized the result of the visit as "unable to obtain 
the information." 

[9] U.S. PIRG, Big Banks, Bigger Fees 2001, PIRG National Bank Fee 
Survey (Washington, D.C.: November 2001). 

[10] See GAO, Financial Regulation: Industry Changes Prompt Need to 
Reconsider U.S. Regulatory Structure, GAO-05-61 (Washington, D.C.: Oct. 
6, 2004) and GAO, Financial Regulation: Industry Trends Continue to 
Challenge the Federal Regulatory Structure, GAO-08-32 (Washington, 
D.C.: Oct. 12, 2007) for additional information on oversight of the 
U.S. financial services industry. 

[11] A bank holding company is a corporation that owns or controls one 
or more U.S. banks. A financial holding company is a bank holding 
company engaged in a broad range of financial activities, including for 
example insurance underwriting, securities dealing and underwriting, 
financial and investment advisory services, merchant banking, issuing 
or selling securitized interests in bank-eligible assets, or generally 
engaged in any nonbanking activity authorized by the Bank Holding 
Company Act. See 12 U.S.C. ï¿½ 1841. 

[12] 70 Fed. Reg. 29582 (May 24, 2005). 

[13] See 12 C.F.R. Part 707. 

[14] Some fees have increased and decreased since 2000, but have an 
overall increase in the time period analyzed. 

[15] GAO analyzed data from two private vendors, Moebs Services, Inc. 
and Informa Research Services, Inc. Moebs Services provided data 
gathered through telephone surveys for each of the years 2000 through 
2007, based on statistically representative samples of institutions. 
Informa Research Services provided data for each of the years 2000 to 
2006. The Informa Research Services data were typically gathered from 
retail banks with large market shares in specific areas and are not 
statistically generalizable to other institutions. Because the data 
provided by Moebs Services cover more years and are statistically 
representative of all depository institutions, we relied on those data 
primarily to characterize overall trends in fees. For more detailed 
information on the characteristics of data sets and the data reported 
by each vendor, see appendixes I and III. 

[16] We also obtained this data from Informa Research Services (see 
app. III). Unless noted otherwise, dollar amounts in the report and 
figures are shown in 2006 dollars, calculated using the Consumer Price 
Index calendar year values. 

[17] We analyzed data for banks and thrifts in one institution type 
category because we were unable to obtain data from both Moebs Services 
and Informa Research Services that disaggregated these two institution 
types. 

[18] Board of Governors of the Federal Reserve System, Annual Report to 
the Congress on Retail Fees and Services of Depository Institutions 
(Washington, D.C.: June 2003). 

[19] FDIC-insured institutions are required by statute to report 
financial data quarterly, known as "Reports of Condition and Income" or 
"call reports" for banks and Thrift Financial Reports for thrifts, to 
each institution's primary supervisory agency. These reports provide 
details on income and certain financial condition information. 

[20] Federally insured credit unions are required to report financial 
information similar to that required for banks and thrifts to NCUA on a 
quarterly basis. However, credit unions are not required to report on 
SCDA but are required to report on fee income. 

[21] The Federal Reserve's 2007 study of noncash payments released on 
December 10, 2007, revealed that in 2006, more than two-thirds of all 
U.S. noncash payments were made electronically. From 2003 to 2006, the 
period covered by the study, all types of electronic payments grew 
while check payments decreased. The rapid growth in debit card use 
resulted in the transaction volume of debit cards surpassing that of 
credit cards for the first time between 2005 and 2006. 

[22] Check 21 Act, Pub. L. No. 108-100, 117 Stat. 1177 (Oct. 28, 2003) 
codified at 12 U.S.C. ï¿½ï¿½ 5001-5018. The act authorizes the use of a new 
negotiable instrument called a substitute check to facilitate the 
broader use of electronic check processing. A substitute check is a 
paper reproduction of an original check that contains an image of the 
front and back of the original check, is suitable for automated 
processing in the same manner as the original check, and meets other 
technical requirements. See Board of Governors of the Federal Reserve 
System, Report to the Congress on the Check Clearing for the 21ST 
Century Act (Washington, D.C.: April 2007). 

[23] According to Federal Reserve officials, the hold periods are 
designed to cover (1) the time it takes to send the check from the 
depository institution to the paying institution, (2) the time 
permitted for the paying institution to determine whether to pay the 
check, and (3) the time it takes to return an unpaid check from the 
paying institution to the depository institution. 

[24] We conducted an extensive literature review and identified only 
one study that analyzed consumer's debit card use and its impact on 
overdraft fees. See Halperin, Eric, et al. Debit Card Danger: Banks 
Offer Little Warning and Few Choices as Customers Pay a High Price for 
Debit Card Overdrafts, Center for Responsible Lending (Jan. 25, 2007). 

[25] 70 Fed. Reg. 29582 (May 24, 2005). 

[26] Fusaro, Marc, Consumers Checking Account Behavior: Are "Bounced 
Check Loans" Really Loans? Theory, Evidence, and Policy (2007). 

[27] Lisa James and Peter Smith, Overdraft Loans: Survey Finds Growing 
Problems for Consumers, Center for Responsible Lending (April 2006). 

[28] While the examination procedures for assessing compliance with 
Regulations DD and E were similar among the five federal bank 
regulators, the ways in which the regulators conducted compliance 
examinations varied. Both NCUA and OTS conduct compliance procedures 
along with safety and soundness procedures during the same examination. 
The other regulators conduct compliance examinations separately from 
safety and soundness examinations. 

[29] 12 C.F.R. ï¿½ 7.4002(b) provides considerations that national banks 
should take into account when setting fees, including (1) establishing 
fees on a competitive basis and not on the basis of any agreement, 
arrangement, undertaking, understanding, or discussion with other banks 
or their officers and (2) establishing the amount of noninterest 
charges and fees based on business decisions that are made according to 
sound banking judgment and safety and soundness principles, which 
include consideration of the cost of providing the service, the 
deterrence or misuse of the service by customers, the enhancement of 
the bank's competitive position, and the maintenance of the safety and 
soundness of the bank. 

[30] See 70 Fed. Reg. 9127 (Feb. 24, 2005) for the guidance issued 
jointly by OCC, the Federal Reserve, FDIC, and NCUA and 70 Fed. Reg. 
8428 (Feb. 18, 2005) for the guidance issued by OTS. OTS issued 
separate guidance that, by and large, was similar to the guidance 
issued by the other federal regulators. Federal credit unions were 
already subject to certain regulatory requirements governing the 
establishment and maintenance of overdraft programs under 12 C.F.R. ï¿½ 
701.21(c)(3). This regulation requires a federal credit union offering 
an overdraft program to adopt a written policy specifying the dollar 
amount of overdrafts that the credit union will honor (per member and 
overall); the time limits for a member to either deposit funds or 
obtain a loan to cover an overdraft; and the amount of the fee and 
interest rate, if any, that the credit union will charge for honoring 
overdrafts. The 2005 interagency guidance supplemented but did not 
change these regulatory requirements for federal credit unions. 

[31] NCUA, Overdraft Protection (Bounce Protection) Programs, Letter 
No: 05-CU-03 (February 2005). 

[32] Consumers may initially contact a federal regulator about their 
complaints using various methods, such as telephone, mail, fax, or e- 
mail. Regulators normally do not formally accept a complaint until they 
have received written or electronic confirmation of the complaint 
because many complaints involve personal information about the consumer 
that the regulator cannot request from a bank without the consumer's 
consent. All of the federal regulators reported that they had systems 
in place to refer or forward complaints to the correct regulator if a 
consumer was unsure of which agency to contact. 

[33] See GAO, OCC Consumer Assistance: Process is Similar to That of 
Other Regulators but Could be Improved by Enhanced Outreach, GAO-06-293 
(Washington, D.C.: Feb. 23, 2006) for more information on the complaint 
process used by OCC and the other federal banking regulators. 

[34] Generally, the federal regulators can take formal enforcement 
actions against financial institutions when compliance examiners find 
violations of laws, rules, or regulations, unsafe or unsound practices, 
breaches of fiduciary duty, and violations of final orders. Formal 
enforcement actions include cease and desist orders, written 
agreements, removal and prohibition orders, and orders assessing civil 
money penalties. 

[35] While we actually visited 202 branches of depository institutions, 
we were unable to meet with a depository institution representative in 
17 branches, thus, we excluded these branches in our analysis. 

[36] For more information on the methodology for our direct 
observations, see appendix I. 

[37] The sample of 185 bank branch visits was not a random, 
statistically representative sample from the overall population of 
banks. Therefore, the results we obtained, and the differences in 
results between subgroups of our sample, are not representative of any 
larger population of bank branches. See appendix I for information on 
the design of the sampling and data collection methods for the visits. 

[38] U.S. PIRG, Big Banks, Bigger Fees 2001, PIRG National Bank Fee 
Survey (Washington, D.C.: November 2001). 

[39] Board of Governors of the Federal Reserve System, The 2004 Federal 
Reserve Payments Study: Analysis on Noncash Payments Trends in the 
United States: 2000-2003 (Washington, D.C.: Dec. 15, 2004). Board of 
Governors of the Federal Reserve System, The 2007 Federal Reserve 
Payments Study: Noncash Payments Trends in the United States: 2003-2006 
(Washington, D.C.: Dec. 10, 2007). 

[40] EFT Data Book: The Complete Guide to the ATM, Prepaid and POS 
Debit Markets in the United States and Europe, ATM&Debit News, 2008 
Edition (Sept. 27, 2007). 

[41] Halperin, Eric, Lisa James and Peter Smith, Debit Card Danger: 
Banks offer little warning and few choices as customers pay a high 
price for debit card overdrafts, Center for Responsible Lending (Jan. 
25, 2007). 

[42] Fusaro, Marc, Consumers Checking Account Behavior: Are "Bounced 
Check Loans" Really Loans? Theory, Evidence, and Policy (2007). 

[43] James, Lisa and Peter Smith, Overdraft Loans: Survey Finds Growing 
Problem for Consumers, Center for Responsible Lending (April 2006). 

[44] Board of Governors of the Federal Reserve System, Report to the 
Congress on the Disclosure of Point-of-Sale Debit Fees (Washington, 
D.C.: November 2004). 

[45] We spoke with a merchant trade association, card associations 
including VISA and MasterCard, card-issuing depository institutions 
(e.g., banks), and third-party processors supporting merchant acquirers 
or card-issuing institutions. 

[46] Real-time account balance information for the purpose of this 
report is the most current balance that the depository institution has 
arrived at when the consumer is conducting their transaction with a 
debit card at a point-of-sale terminal or ATM. Some depository 
institutions update their balances throughout the day and call this the 
available daily balance. Other institutions update the balance once a 
day (usually in the evening) and post this balance throughout the day. 

[47] ATM owners can be banks, merchants, or independent service 
organizations--companies that specialize in offering ATMs. For more 
information related to ATM transaction processing and disclosure 
issues, see GAO, Automated Teller Machines: Issues Related to Real-time 
Fee Disclosure, GAO/GGD/AIMD-00-224 (Washington, D.C.: July 11, 2000). 

[48] For additional information on fee and disclosure issues associated 
with point-of-sale debit transactions, see Board of Governors of the 
Federal Reserve System, Report to the Congress on the Disclosure of 
Point-of-Sale Debit Fees (Washington, D.C.: November 2004). 

[49] To complete a PIN-based debit transaction, a consumer must have a 
debit card linked to a deposit account at a depository institution that 
is a member of an EFT network, and the merchant must have a network- 
compatible point-of-sale terminal. 

[50] EFT networks are the telecommunications and payments 
infrastructure linking consumers, merchants, and banks. The physical 
components consist of point-of-sale terminals, telecommunications 
connections, apparatus that route transaction information to 
appropriate parties, and computers that store deposit and transaction 
information. According to the 2008 EFT Data Book, as of March 2007, the 
top 10 EFT networks based on total volume of transactions were 
Interlink, Star, Accel/Exchange, Interac, Pulse, NYCE, Co-op, Jeanie, 
Shazam, and MoneyMaker. 

[51] Historically, the term "acquirer" referred to the depository 
institution that connected the merchant to the network. Currently, the 
term refers either to the merchant's processor--a third-party entity 
that performs a variety of merchant-related payment activities--or to 
the depository institution that sponsors the processor's access to the 
EFT network. 

[52] According to Federal Reserve officials, under the overdraft 
protection programs banks may establish a cushion for paying 
overdrafts, and they might not pay an overdrawn item if the consumer 
has exceeded their cushion. In addition, under these programs, banks 
state that the payment of overdrafts is discretionary. If a consumer 
has insufficient funds at the time of authorization, but has 
established overdraft protection by linking their checking account to a 
savings account, credit card, or line of credit, then the purchase 
would be authorized, and funds would be transferred from the linked 
account, with an overdraft transfer fee applied to the transaction. 

[53] According to Federal Reserve officials, under card association 
rules, a consumer will not always be required to sign the receipt. For 
example, in certain product markets transactions below a defined dollar 
threshold, which is currently $25, do not always require the customer's 
signature. 

[54] The merchant typically receives payment within 2 days of the 
transaction. This 2-day range applies to a transaction submitted 
electronically; a merchant may face a longer delay for the crediting of 
a paper-based signature debit transaction. Most signature-based debit 
card transactions are submitted electronically. 

[55] According to Federal Reserve officials, an ATM switch will be used 
to route the transaction if the EFT network used for the transaction is 
different from the EFT network in which the ATM operator participates. 

[56] EFT Data Book, 2008 edition. 

[57] The ACH Network is a nationwide batch-oriented electronic funds 
transfer system that provides for the interbank clearing of electronic 
payments for participating depository financial institutions. The 
Federal Reserve and Electronic Payments Network act as ACH operators, 
central clearing facilities through which financial institutions 
transmit or receive ACH entries. 

[58] However, this option would not help consumers of smaller 
institutions that do not update the available balance throughout the 
day. 

[59] The data from Moebs Services and Informa Research Services showed 
similar trends using nominal dollars, but once we adjusted for 
inflation, some of the data trend patterns differed between the two 
data sources. These differences appeared to be due to differences in 
the characteristics of the institutions surveyed. Informa Research 
Services had a higher concentration of large institutions in its 
earlier survey group. Since larger institutions tend to charge higher 
fees, this would likely result in a higher average fee than if the 
survey group had a higher proportion of smaller institutions. 

[60] In the tables that follow these instances are identified by "--." 

[61] Interest checking-regular: A basic interest checking account. 

Noninterest checking-balance: A checking account that does not earn 
interest and requires a minimum balance in order to waive the monthly 
maintenance fee. 

Noninterest checking-flat fee: A checking account that does not earn 
interest and has a monthly fee that cannot be waived with a minimum 
balance. 

Senior checking: A checking account exclusively for seniors. It can be 
interest or noninterest bearing. 

Statement savings/passbook savings: Passbook Savings accounts record 
information in a passbook. A "Statement Savings" account receives a 
statement in the mail from the bank. 

[62] NCUA could not report the outcomes of complaints in the same 
categories reported by the other regulators. 

[End of section] 

GAO's Mission: 

The Government Accountability Office, the audit, evaluation and 
investigative arm of Congress, exists to support Congress in meeting 
its constitutional responsibilities and to help improve the performance 
and accountability of the federal government for the American people. 
GAO examines the use of public funds; evaluates federal programs and 
policies; and provides analyses, recommendations, and other assistance 
to help Congress make informed oversight, policy, and funding 
decisions. GAO's commitment to good government is reflected in its core 
values of accountability, integrity, and reliability. 

Obtaining Copies of GAO Reports and Testimony: 

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through GAO's Web site [hyperlink, http://www.gao.gov]. Each 
weekday, GAO posts newly released reports, testimony, and 
correspondence on its Web site. To have GAO e-mail you a list of newly 
posted products every afternoon, go to [hyperlink, http://www.gao.gov] 
and select "E-mail Updates." 

Order by Mail or Phone: 

The first copy of each printed report is free. Additional copies are $2 
each. A check or money order should be made out to the Superintendent 
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 
more copies mailed to a single address are discounted 25 percent. 
Orders should be sent to: 

U.S. Government Accountability Office: 
441 G Street NW, Room LM: 
Washington, D.C. 20548: 

To order by Phone: 
Voice: (202) 512-6000: 
TDD: (202) 512-2537: 
Fax: (202) 512-6061: 

To Report Fraud, Waste, and Abuse in Federal Programs: 

Contact: 

Web site: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]: 
E-mail: [email protected]: 
Automated answering system: (800) 424-5454 or (202) 512-7470: 

Congressional Relations: 

Gloria Jarmon, Managing Director, [email protected]: 
(202) 512-4400: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7125: 
Washington, D.C. 20548: 

Public Affairs: 

Chuck Young, Managing Director, [email protected]: 
(202) 512-4800: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7149: 
Washington, D.C. 20548: 

*** End of document. ***