What's Driving the Sudden Shift Toward Simpler Disclosures?

These days, simplified checking account disclosures are like the skinny jeans of the banking industry — a fad that shows no sign of slowing.

Increasingly, banks of all sizes are touting new disclosures that detail account rules and fees for consumers in just a few pages.

Bankers say the efforts have been in the works for several years and are designed to promote transparency. But given that the checking account has been a mainstay product for decades, the current impetus for simpler disclosures may have more to do with mounting regulatory scrutiny over some checking account fees.

"What you have now is a lot of public criticism of deposit account disclosures and deposit account agreements. So you have publicity, resulting in consumer awareness and consumer concern. Really, the only place for financial institutions to go is simplification," says Richard Fischer, a partner with the law firm Morrison & Foerster.

A number of major institutions, including JPMorgan Chase (JPM), Citigroup (NYSE:C), Wells Fargo (WFC) and Regions Financial (RF), have unveiled simpler disclosures since December. Bank of America (BAC) has also said that it intends to issue easier-to-read notices later this year.

Earlier this month, Capital One (COF) became the latest big bank to roll out new disclosures, providing customers with a four-page menu outlining account fees and requirements.

"Capital One Bank believes it's important to clearly show the details of our checking accounts and we wanted to do this in a convenient way for customers. These simple disclosures enable customers to make informed choices when selecting a checking account," spokeswoman Amanda Landers wrote in an email.

Other banks have also said that efforts to simplify disclosures are designed around helping consumers better understand their accounts.

The Pew Charitable Trusts drew attention to the issue last year when it designed a model disclosure box, and it has since partnered with nine financial institutions to write simpler disclosures. Many others have used the model as a starting point for their own disclosures, according to the banks.

Financial institutions "tell us that the box will give them much better transparency," says Susan Weinstock, director of the Safe Checking in the Electronic Age Project at Pew.

She adds that several more banks are slated to start offering simpler disclosures by the end of the month.

Observers say that updated disclosures have been in the works at many banks for several years. But they note that concern over potential lawsuits may have kept some banks from rushing new disclosures out the door.

"Essentially the legal demands - contract law as well as regulations - demand use of terminology and thoroughness to be effective or enforced" in account agreements, says Nessa Feddis, vice president and senior counsel for the American Bankers Association.

"It's a challenge because you have to be consistent - if you say something in the summaries it has to be consistent" with what's said in a longer and more detailed legal agreement, she adds.

But pressure to offer a simpler account description has been building, thanks to a growing regulatory and legal focus on checking account products.

For example, the Consumer Financial Protection Bureau earlier this year announced that it was targeting overdraft practices, and a number of banks have settled class action lawsuits over the reordering of debit transactions from high to low to maximize overdraft fee revenue.

"Lawsuits over the past few years and the focus of all regulators on overdraft fees have really thrown a very bright light of public policy on not only the overdraft fees but broader questions of deposit account disclosures and simplification," says Morrison & Foerster's Fischer.

The CFPB's desire to ensure that consumers understand the products they are using may also be lighting a fire under banks.

"I think the bureau has encouraged banks to review their disclosures and how they can make them more understandable," Feddis says. "They were already working for improving disclosures, and that provided an extra incentive."

Fischer says some banks may also be hoping that any action now could preempt the need for greater regulation of account disclosures.

"At some institutions, some may think that if you do a good enough job, there's really no reason for bureau action at all," he says. "If you have the bureau saying 'We're going to push for simplification,' I think any financial institution would be wise to get ahead of that game."