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On Checking Fees, Your State Matters

Distressed woman holding up a piggy bankWhere you live can impact how likely you are to get dinged by checking account fees.

A new Pew Charitable Trusts examination looked at how many big banks in each state have adopted best practices for overdraft policies, account disclosures and dispute resolution procedures.

While the study “Checks and Balances: Best Practices in the States” ranks states on seven measures, only three hit consumers where it matters most — in their pocketbook.

Of the 36 biggest banks surveyed, 97% allow overdrafts at ATMs, 83% allow overdrafts when you make a purchase and 80% allow transaction reordering.

That gives banks ample opportunity to dip into your pocket. In an earlier study, Pew found the median overdraft fee at the 12 largest banks was $35.

But among the individual states, policies are all over the map. Just two states — both in the West — score better-than-average marks on all three measures. (See how well the banks in your state rate here.)

On one end of the spectrum, 13 of the 36 big banks operate in California. Of those banks, 11% ban ATM overdrafts, 31% forbid overdrafts when you make a purchase and 31% prohibit transaction reordering.

Since those 13 banks account for nearly three-quarters of the deposits in the state, odds are good you use one of them if you live in the Golden State.

Nevada also outranks the national average. With 10 big banks operating there, 8% prohibit ATM overdrafts, 28% prohibit point-of-sale overdrafts and 36% deny transaction reordering.

On the extreme, several Midwestern states stand out for their fee-grabbing policies.

Nine big banks operate in Michigan, yet none prevent transaction reordering or ATM overdrafts, while 15% ban point-of-sale overdrafts.

It’s not any better in Ohio, where eight of the banks operate. None ban ATM or point-of-sale overdrafts and 18% prevent transaction reordering.

If you don’t live in one of the more consumer-friendly states, online banks have you covered.

In an earlier study that the state-by-state analysis is based on — “Checks and Balances: Measuring Checking Accounts’ Safety and Transparency” — Pew gave some of its highest marks to two online banks, Ally Bank and Charles Schwab Bank, which are open to all U.S. customers. Neither bank allows overdrafts or transaction reordering.

Both studies examined the practices of 36 of the nation’s 50 largest banks. The 14 other biggest banks failed to provide requested disclosures.

In its study on checking account safety and transparency, Ally Bank earned top marks overall, adopting six of seven best practices. Charles Schwab Bank, First Republic Bank, Citibank and Bank of America came in second, adopting five best practices each.

Pew’s latest study shows why it’s so important for you to understand your checking account’s terms. The nonprofit has drafted a model checking account disclosure, which has been adopted by 56% of the banks surveyed. It highlights things such as a bank’s overdraft and transaction reordering policies, as well as account fees.

With or without the disclosure box, you should make sure to read the fine print when you’re opening a checking account and understand exactly where your bank can hit you financially.

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