A bank where I have a deposit account recently sent me a booklet titled “Depository Agreement and Disclosures.” This booklet sets forth the terms of the contract I have with my bank governing my account — and it’s 47 pages long!
By keeping my account at the bank, I agree to these terms. If I don’t like the terms, my recourse is to close the account and open an account somewhere else.
At the moment, at least, I have no complaints with my bank, and I don’t plan to close my account and look for another bank, where I’m likely to encounter the same (or more onerous) terms. But, when I received this booklet, I asked myself: Why should it take 47 pages to set out the terms of a run-of-the-mill deposit account? The answer to that question, I think, goes like this.
The relationship between a bank and its deposit account customer is in fact very complicated. At work are numerous federal and state statutes that, of necessity, become a part of the bank/customer contract. Then, within that framework, banks have some wiggle room to customize terms, and this requires them to make choices and establish clearly stated rules, to the extent they are allowed to do so.
On the obligatory laws part of this scenario, we have, at the federal level, the Expedited Funds Availability Act, the Electronic Fund Transfer Act, the Truth In Lending Act, the Truth In Savings Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act, the Fair Debt Collection Practices Act, the Patriot Act and the Internal Revenue Code, to name but a few. At the state level, we have the Uniform Commercial Code, which provides the core rules for how checks and wire transfers move money around in the banking system, and a multitude of consumer protection laws. Many of these laws mandate disclosures banks must give their customers and come with complex regulations, which fill in gaps left by the statutes.
Areas where banks have some discretion to establish contract terms include dispute resolution, such as mandatory arbitration provisions, and time periods, such as how long a customer has to report errors or fraud appearing on a bank statement before the bank’s duty to fix the error or respond to the fraud is diminished. Banks also have room to customize overdraft policies, decide the order in which checks and debit card purchases are paid out of an account, set fees for various services, regulate the use of powers of attorney and safe deposit boxes, place holds on certain kinds of deposits, and determine how international transactions will be handled.
With all this complexity, diligent comparison shopping for deposit account services is pretty much impossible (and likely to put you in a bad mood). Your best bet is to focus on product pricing, convenience (including electronic banking tools) and customer service (“please listen carefully as our menu options have changed…”). Also, if you regularly engage in international banking transactions, you should look for a bank that has the experience and expertise necessary to support your needs. In that regard, at least, not all banks are created equal.