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Big banks haven’t improved much in the last year

A sign for a Bank of America office is pictured in Burbank, California August 19, 2011. REUTERS/Fred Prouser

As important as it is for banks to protect their customers from hackers and data breaches, sometimes the biggest threat out there is the bank itself.

In a new study of checking account practices at 50 of the nation’s largest banks and credit unions, the Pew Charitable Trusts found that banks are still employing shady practices that can take a bite out of customers’ balances.

Half of big banks are still reordering consumer transactions from highest amount to lowest, making it easier to inadvertently overdraw an account, up from 47% last year. This chart shows just how costly transaction reordering can be in a hypothetical scenario:

For banks, reordering transactions is an easy way to collect overdraft fees, which cost consumers $32 billion a year, according to the Consumer Financial Protection Bureau. More than 70% of banks charge $35 or more when a customer’s withdrawal exceeds their account balance, and in many cases, fees can be charged as many as four times in a single day.

An even larger study of U.S. banks published in January found that overdraft fees are creeping higher each year. At more than 2,800 banks surveyed by Moebs Financial Services, the median fee for overdrawing a checking account was $30 in 2013, up from $29 in 2012. Even credit unions, long considered to be more fee-friendly than big banks, increased their median overdraft fee from $28 to $29 last year.

Consumers can even incur overdraft fees at the ATM. Three-quarters of banks in Pew’s study let customers overdraw their accounts at ATMs. A bank teller wouldn’t let customers withdraw more funds than they have available, so it makes little sense that they could do so at an ATM and get hit with a $35 fee for the privilege.

Other than watching your bank account like a hawk to be sure you’re not spending more than you have, the only way to avoid these fees is to opt out of overdraft protection services if you are currently enrolled. That’s the “service” banks offer that triggers overdraft fees in lieu of declining your transaction.

“There’s lots of room for improvement for banks in providing safe and transparent checking accounts,” said Susan Weinstock, director of Pew’s safe checking practices arm. “[Consumers need] new rules to require that all consumers have basic protections no matter where they have a checking account.”

In addition to harmful overdraft practices, even more banks make it difficult for consumers to take them to court to resolve complaints. Seventy percent of banks require customers to settle any legal complaints through a third-party mediator and more than 60% ban customers from joining class action lawsuits. On top of that, one in three banks require consumers to pay for the bank’s legal expenses in the event that the consumer loses their case.

Where banks have improved

It’s not all bad news for bank practices. Ally Bank, First Republic Bank and Bank of America  came out on top in Pew’s report, meeting at least 5 out of 7 best practice requirements for disclosure forms, overdraft protections and dispute resolutions. Ally Bank scored a perfect 7/7.

Since its study last year, Pew found that a lot of banks have been proactively making their checking account practices more transparent.

Twice as many banks this year use summary disclosure boxes that highlight their key terms and fees — up to 43% from 22% in 2013.  Twenty-six banks and credit unions went so far as to adopt the model disclosure forms Pew proposed in last year’s report.

Overdraft fees may be universally hated, but consumers can’t say they aren’t warned about them. Fully 100% of banks studied by Pew disclose their overdraft fees, up from 93% last year. The number of times that customers can be charged overdraft fees in a single day has also improved, falling from five to four times this year.

Curious to see how your bank stacked up? Check out this chart showing rankings based on Pew’s research: