Millions can’t get a bank account
Opening a bank account would seem to be an opportunity that nearly anyone could take advantage of, but more than one million lower income Americans have been essentially barred from opening accounts due to banking issues such as bounced checks and overdraft. These acts are tracked by private databases and then provided to major banks and other financial institutions to leverage when making a decision on whether an applicant should be approved or denied to open an account. If the database shows that an applicant has a history of insufficient funds or missed payments, it weakens their standing with the bank.
More than 10 million households are without a banking account in the U.S., and consumer advocates say these databases disproportionately impact lower income households because they have less cash flow coming in, and therefore are more susceptible to missing a payment or bouncing a check. The Consumer Financial Protection Bureau is looking into whether or not banks’ reliance on these databases violates the Fair Credit Reporting Act, as it is designed to halt the flow of inaccurate consumer information. If the data that is stored in databases like ChexSystems and Early Warning is incorrect, it is a cumbersome process to get corrected, and harms applicants’ chances of being approved to open an account.
Consumers don’t know about these databases
Although overdrafts and insufficient funds are indeed financial transgressions, banks expect them to occur from time to time and have repercussions in place for when these things occur. But consumers often don’t know that these databases record these mishaps and provide that data to the banks; and if an applicant is at a lower income level, and a search in these systems reveals that they have had past banking issues, it could prevent them from being eligible to open an account for as long as seven years.
In New York, hundreds of thousands of households are without bank accounts, and these reporting databases are cited as a major reason for why it is so difficult for them to gain stronger financial footing. “Hundreds of thousands of Americans are being shut out for relatively small mistakes,” said Jonathan Mintz, commissioner of the New York City Department of Affairs. But Early Warning says the databases are meant to help banks make an educated decision on which applicants present a risk to the business. “Client banks are focused on leveraging intelligence to mitigate fraud from going into the system,” said Frank Caruana, chief marketing officer for the company.
