A growing number of Americans are flocking to banks and credit unions to buy goods and services online or in-person.
The number of people opening checking and savings accounts jumped more than 10 percent last year, according to the U.S. Consumer Financial Protection Bureau.
The total number of financial institutions is up more than 200 percent in the past decade, said the bureau.
And while online purchases may seem like a good idea at first glance, a closer look at the market reveals some problems.
Some of these institutions offer little or no transparency and aren’t subject to the same federal laws that apply to brick-and-mortar banks, said Elizabeth Weidenfeld, a professor of law and finance at the University of California, Los Angeles.
For example, the U-T San Diego found that there is no state law that prohibits payday lenders from charging consumers interest on their loans.
The U.K.’s Financial Conduct Authority said last year that it will investigate the legality of payday lending.
Many financial institutions, including Wells Fargo and Bank of America, do not have a national database that tracks borrowers’ transactions and are required to report only how much money they make.
While some states require borrowers to sign a statement of interest, that isn’t always enforced, said Paul Mottram, the director of the Consumer Financial Services Institute, a consumer advocacy group.
Weidenfield said that while a bank might have a database with information about all the people who have borrowed money, it doesn’t have a complete accounting of all the transactions.
So if the bank has a lot of money, the bank could have a lot to hide, she said.
“It makes you wonder, what other information is that bank hiding?”
Weidenstein said banks need to do more to make sure borrowers are in the clear.
“I think banks should make sure that the information they are collecting and the information that they’re using to make these decisions is really about providing a better service, and that is why you see so much regulation and so many restrictions,” she said, referring to laws that require banks to treat customers fairly and keep their accounts closed.