Should Consumers Trust Banks?

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Credit Sesame discusses whether consumers should trust banks in the wake of the Wells Fargo fine levied by the CFPB.

On December 20, the Consumer Financial Protection Bureau (CFPB) announced $3.7 billion in fines and penalties against Wells Fargo Bank. In a news release, the CFPB stated,

Consumers were illegally assessed fees and interest charges on auto and mortgage loans, had their cars wrongly repossessed, and had payments to auto and mortgage loans misapplied by the bank. Wells Fargo also charged consumers unlawful surprise overdraft fees and applied other incorrect charges to checking and savings accounts.

CFPB, Consumer Financial Protection Bureau Dec 20, 2022

And CFPB Director Rohit Chopra had harsh words for Wells Fargo.

Wells Fargo’s rinse-repeat cycle of violating the law has harmed millions of American families. The CFPB is ordering Wells Fargo to refund billions of dollars to consumers across the country. This is an important initial step for accountability and long-term reform of this repeat offender.

CFPB Director Rohit Chopra

Can consumers trust banks?

Working with a bank is an act of trust. Whether depositing hard-earned money with a bank or relying on them for credit, it’s natural to assume that you can trust them to handle your business competently and honestly.

However, CFPB enforcement actions like the one against Wells Fargo are a reminder that the blind trust consumers place in financial institutions may sometimes be misplaced. Keeping a close eye on banks and other financiers is wise.

Wells Fargo is not alone

CFPB Director Chopra called out Wells Fargo for being a repeat violator of financial regulations. Wells Fargo is a likely target for enforcement actions because of its size. According to FDIC data, it’s the third-largest bank by customer deposits in the United States. But, the CFPB’s enforcement action against Wells Fargo is just one of 19 the CFPB announced against various financial institutions in 2022. Over the previous 10 years, more than 300 CFPB enforcement actions have been taken.

Besides Wells Fargo, three other banks that rank in the top 25 by deposits ran afoul of the CFPB in 2022:

  • Bank of America.
  • U.S. Bank.
  • Regions Bank.

Most people have no real choice in whether to use a bank. Banking is ingrained in the fabric of living and working. But the Wells Fargo fine by the CFPB serves as a reminder that financial institutions sometimes cross the line.

How do you know you can trust your bank?

The CFPB is a government watchdog created in the aftermath of the 2008 financial crisis to look out for the interests of consumers. The CFPB watches over thousands of financial institutions, but cannot guarantee to catch every financial violation. You can also look out for your financial interests. Even without systematic overcharging, banks sometimes make errors.

Reviewing transactions on your bank statements can alert you to issues that cost you money. These may result from honest mistakes, persistent rule violations, or expensive policies.

Five things to look for

Some common account practices that cost you money aren’t against the law. Banks must have a profit to remain in business. Ideally, they don’t profit too much at your expense. Here are five things you should look for on your bank and credit card statements.

1. How much have your credit card rates gone up?

The Federal Reserve raised interest rates by 4.25% in 2022. It’s reasonable to expect that your credit card interest rate might have gone up over the past year.

However, not all credit card companies react simultaneously or to the same degree. Some credit card rates go up more than others. Check your current interest rate on each credit card statement. Take note of any rate increases, and do a little comparison shopping to see how competitive your current rate is with other cards out there on the market.

2. Have you been hit by a late fee?

Check credit card statements to see if you’ve been charged late fees.

Check your credit card statements to see if payments are up to date and if you have been charged any late fees. If so, check the timing of your recent payments. The Credit CARD Act stipulates that payments should be due on the same date each month or the next business day if the due date falls on a holiday or weekend. The CARD Act also mandates that your credit card statement be sent 21 days before the due date.

If you believe you have been charged a late fee improperly, you should get the details together and dispute the late fee. This may save you the amount of the fee and also prevent a late payment count against your credit record.

3. Does your bank still charge overdraft fees?

Overdraft fees have come under fire in recent years. At around $35 per occurrence, multiple overdraft fees can create a significant financial burden.

The good news is that according to the CFPB, many banks have been easing their overdraft policies. These changes include lowering overdraft fees, reducing the number of those fees the bank can charge in a single day or eliminating overdraft fees altogether.

If you’ve been charged an overdraft fee recently, it may be worth considering opening a new bank account with no or lower overdraft fees.

4. Are there any other unexpected fees on your statement?

An unexpected or unknown debit from your account could be a new bank charge. Financial institutions sometimes send notice of new fee policies by snail mail that you discarded without reading.

If the fee is levied by your bank, contact your bank to find out why and how it was assessed. That way, you can understand how to avoid it in the future.

5. Is your savings account rate keeping up?

According to the FDIC, average savings account rates were near zero for several years, but that started to change this year. Savings account interest rates have finally started to rise. Banks are quicker to raise the rates they charge on loans and credit cards than they are to raise the rates they pay on savings accounts.

This is a good time to look at your savings account statement to see what rate your account is paying. Then you can go ahead and shop around to see if you can find a better rate. You don’t necessarily have to earn the highest rate as long as your account’s rate is reasonably competitive with what the leading banks are paying today.

In 2022, banks raised credit card rates by about 2%. Meanwhile, they raised savings account rates by just 0.24%. The message? Banks look after their interests first. Smart consumers need to look out for themselves by comparison shopping to ensure they get the best banking deals they can.

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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

Richard Barrington
Financial analyst for Credit Sesame, Richard Barrington earned his Chartered Financial Analyst designation and worked for over thirty years in the financial industry. He graduated from St. John Fisher College and joined Manning & Napier Advisors. He worked his way up to become head of marketing and client service, an owner of the firm and a member of its governing executive committee. He left the investment business in 2006 to become a financial analyst and commentator with a focus on the impact of the economy on personal finances. In that role he has appeared on Fox Business News and NPR, and has been quoted by the Wall Street Journal, the New York Times, USA Today, CNBC and many other publications.

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