Study Points to Restrictions on Checking : Banks, S&Ls; Defend Low-Cost Account Rules

A growing number of California savings institutions are offering low-cost checking accounts, but most carry restrictions that reduce their attractiveness to elderly, low-income and non-English-speaking consumers, a survey by a San Francisco consumer group contended Monday.

However, officials of some major California banks said their low-cost accounts have been popular among low-income and elderly consumers, despite restrictions. They added that most banks in the state also offer free, unrestricted checking accounts for people over 62.

Consumer Action, a nonprofit group that tracks banking practices statewide, said its survey, conducted in October, showed that 19 of the 83 (about 23%) California banks and savings and loan associations surveyed offer checking accounts with monthly service charges of $3 or less.

Monthly fees range as high as $12 for other non-interest-paying accounts and even higher for interest-bearing ones, said Ken McEldowney, Consumer Action’s executive director.

Although the group did not do a corresponding survey last year, most of the institutions that offer low-cost accounts initiated them within the past year, McEldowney said.

Many Don’t Pay Interest

“Cheap or free accounts had disappeared” under banking deregulation in the last few years, McEldowney said, noting that such accounts began to reappear in California when Security Pacific National Bank introduced one more than a year ago.

The lowering of fees on such accounts, however, comes as some institutions are raising fees on other types of accounts, such as money-market savings and money-market checking accounts, which pay higher interest than the low-cost checking accounts covered in the survey.

Many of the low-cost accounts do not pay any interest, McEldowney said. And most, he added, have restrictions, including limited check writing, reduced teller contacts and “check truncation,” which means that canceled checks are not returned with a customer’s statement.

Most require account holders to use an automated teller machine for routine transactions. Charges for each transaction with a live bank teller that could have been performed on the automated teller range from 15 cents to as much as $1, the survey said.

“With these restrictions, there is a fairly narrow slice of the population for whom these accounts are attractive,” McEldowney said, contending that elderly and non-English-speaking consumers often are unable or unwilling to use automated tellers.

He also contended that banks are offering these accounts partly “to ward off” potential legislation requiring all savings institutions to offer free or low-cost “lifeline” accounts, possibly with few or no restrictions.

A bill by state Sen. Nicholas Petris (D-Oakland) calling for such accounts was defeated last year, but it is expected to be reintroduced this year. Also, some members of Congress have suggested including requirements for lifeline accounts in any interstate banking legislation.

But bank officials disputed Consumer Action’s contentions.

“Our product could fulfill the needs of people who are looking for a lifeline account,” Bank of America spokesman Jack Houseman said.

In the Sacramento, Stockton and Lodi areas, he said, the bank is testing a no-interest checking account that offers unlimited check writing and other features for $2 a month, provided that human tellers are not used for transactions that can be performed on an automated teller.

“We have found that our account is very appealing to low-income people who have a branch near them,” Security Pacific spokeswoman Susan Taha said. The bank’s low-cost account is free of monthly fees as long as customers write no more than 10 checks per month, use tellers for routine transactions no more than twice a month and maintain a $100 minimum balance.

Consumer Action’s McEldowney said savings and loans surveyed tended to have lower fees than banks. Four S&Ls--Homestead; Savings, Merit Savings Bank, Progressive Savings & Loan Assn. and San Francisco Federal Savings & Loan Assn.--offer accounts free of monthly service charges and have no limitations except for a minimum balance to open an account, the survey showed.