Consumers have complained its data has been used to deny them bank accounts
of ConsumerAffairs
Banks have relied on the information to identify people accused of fraudulent activity at one institution, so they can be prevented from carrying it out at another. But consumers have complained that the database uses go far beyond that.
“I went to a local bank to open up a savings account (I want to give the bank money and not get any interest, which is a totally different topic) and I was told I was not qualified for unknown reasons,” John, a reader from New York, posted at ConsumerAffairs. “I then went to my own personal bank where I have been banking over 10 years and told I was declined due to Chexsystems.”
Faulty facts
John and some other consumers posting similar reports insist the ChexSystems information about them was incorrect. Others had said they had bounced checks in the past but had always paid the money back, along with overdraft fees.
It got the attention of New York Attorney General Eric Schneiderman, who has reached agreement with a major bank – Capital One– to change the way it uses ChexSystems.
Schneiderman says the result will be that more consumers will be able to open Capital One bank accounts.
“No one - least of all struggling New Yorkers - should be forced to rely on high-cost alternatives to banks just because they bounced a check or were a victim of identity theft,” Schneiderman said. “Equal access is the least we can do to ensure that all New Yorkers have access to widely used services such as our nation's banking system. I commend Capital One for stepping up and working with us to help eliminate an unnecessary barrier to opening a checking or savings account. I would hope other banks will step up and join us to do the same.”
Banking gate keeper
ChexSystems is a database that many large banks use to make judgments about consumers who apply to open accounts. Schneiderman says consumers who get a red flag from ChexSystems are generally lumped into those who present a credit or fraud risk and their account applications are rejected.
As a result they may be forced to join the growing ranks of the “unbanked” – consumers who don't have a bank account and often rely on prepaid money cards and other financial devices that are sometimes more expensive and less convenient.
Under the agreement, Capital One will continue to screen applicants using ChexSystems but will only check for past problems. It will not try to predict whether the applying customers are a current risk.
The bank will also increase its support for a New York City agency that offers financial education and counseling to low-income residents of New York. Specifically, Capital One will provide funds for the agency to help rejected applicants improve their financial education.
New business model
Not long ago banks competed hard for new customers, promoting all of their financial services. Older folks might remember when banks offered toasters and dinnerware to new customers.
But changes in the banking industry since 2008 have meant a growing number of consumers can't get a bank account because, frankly, banks want only the most profitable customers now. Schneiderman cites statistics showing the New York State average for unbanked households is 9.8%, higher than the national average of 7.7%.
Of counties in New York with more than 100,000 households, the study ranks the Bronx as the second most unbanked county in the country and Brooklyn as eighth.