Dec 01, 2014

What’s the Catch?: When Is A “Free Checking Account” Not a Free Checking Account?

This ad seems pretty straightforward, right?

Free checking right.  I mean Totally Free Checking.  Well, not really.  

The Consumer Financial Protection Board took action against M&T Bank for “deceptively advertising free checking.”  So,what happened?  It turns out M&T didn’t disclose that “the free checking account customers had to maintain a minimum level of account activity with deposits and withdrawals to maintain the free account.”  So, when 59,000 customers didn’t hit those minimum activity levels their accounts were converted over to “non-free” accounts (and charged $2.9 million in fees).  To add insult to injury, according to the CFPB customers weren’t notified of the fees attached to their newly converted accounts:  “The only indication customers received that their “Free Checking” account had been converted to an “M&T First” account due to account inactivity was that “M&T First” would appear on account documents, such as paper statements.

Could a savvy consumer have caught this prior to signing up for this “free checking account?

The CFPB consent order indicates that consumers opening the account DID receive a one-pager from the bank that disclosed the minimum activity requirement and the automatic conversion into a fee-based account if these requirements weren’t met.

The lesson:  Don’t believe advertising and be sure to READ ALL the disclosures.

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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