Report: Account Screening Consumer Reporting Agencies Impede Banking Access for Millions
Monday, October 19, 2015
While a lack of financial education is often cited as the key reason tens of millions of people across the country don't have bank or credit union accounts, in fact, millions are shut out from the mainstream banking system because of a small group of little-known companies who manage databases used by financial institutions to determine whether or not to allow a consumer to open an account. A new report released today by the Cities for Financial Empowerment Fund (CFE Fund) and the National Consumer Law Center (NCLC) entitled "Account Screening Consumer Reporting Agencies: A Banking Access Perspective"outlines the tremendous and deeply flawed role that "account screening consumer reporting agencies" (CRAs) play in determining whether consumers can obtain an account. The report raises concerns about these companies, financial institutions' use of their reports, and offers solutions both for industry leaders and regulators.
"Most of us barely notice the critical roles our bank or credit union account plays in our daily lives – using our debit card to purchase something, paying our bills, safely depositing our paychecks," said Jonathan Mintz, President and CEO, Cities for Financial Empowerment Fund. "Yet, millions of consumers are excluded from this basic tool costing them tens of thousands of dollars over their lifetime, not because of a lack of financial education, but because of little-known and deeply flawed account screening consumer reporting agencies. This report explores the nature of this flawed consumer reporting agency system, and details ways in which financial institutions and regulators could meaningfully address legitimate reporting needs consistent with their efforts to expand financial inclusion."
Over 80 percent of financial institutions use account screening CRAs, which were originally intended as a means to warn financial institutions about potential customer's past fraud. However, the report notes that the vast majority of negative information in account screening CRAs doesn't rise to the level of fraud, but involves prior overdrafts or so-called "account abuse."
"To accuse a consumer of committing 'account abuse' by overdrawing her account is bad enough, given how bank practices have exacerbated overdrafts," stated National Consumer Law Center staff attorney Chi Chi Wu, "But to then shut a consumer out of the banking system for years afterwards is unfair and egregious."