Next up on the Consumer Financial Protection Bureau’s agenda: how banks screen customers when they open checking accounts. At a forum in Washington D.C. this week, CFPB Director Richard Cordray raised the issue of whether financial institutions unfairly block some consumers from opening checking accounts, while exposing others to inappropriate risk.
When consumers go to a bank or credit union to set up a checking account, they are screened for risk factors, including whether they have engaged in any fraudulent or illegal conduct, such as money laundering. Banks and credit unions also screen consumers to determine if they pose a credit risk and how likely it is they will incur overdrafts and pay them back.
In their screening for risk, banks and credit unions often rely on reports from consumer reporting agencies, often turning to specialized firms that collect and provide information on a consumer’s financial history, including medical payments, employment, insurance claims, past checking account closures, charge-off amounts, non-sufficient funds activity, unpaid or outstanding bounced checks, overdrafts, and fraud.
Cordray said the CFPB has three areas of concern: the accuracy of these reports; a customer’s ability to access these reports and dispute incorrect information; and the ways these reports are being used. “We are concerned about whether this information contains too many imperfections and inconsistencies,” he said. One concern is that screens may not differentiate between accountholders who perpetrate fraud versus those who are victims of fraud. Also, definitions used to report an involuntary account closure vary industry-wide on some central points, such as how long a negative balance may go unpaid before it is charged off and the account is closed and reported to the consumer reporting agency. Some banks or credit unions separate out the principal and fees when they report overdue debts, while others do not. Some banks update their reports daily, others only on a monthly basis. Sometimes charged-off balances are sold as debts or assigned to collectors.
Credit reporting agencies have an obligation to have procedures in place for “maximum possible accuracy,” Cordray said, adding that the CFPB is “interested in understanding what procedures they follow, what alternatives are possible,” and how the information furnished to specialty consumer reporting agencies can be improved to ensure greater consistency and quality. Better data may enable a financial institution “to make more nuanced decisions in account screening rather than simply reaching a binary ‘yes or no’ result, providing greater access to the banking system, he said. The CFPB, although no plans were announced, will consider actions to make sure that consumers are able to readily to access their reports and get inaccuracies fixed in a timely fashion.
“When consumers discover inaccuracies, it is important that they have an effective avenue of appeal available for them to challenge those inaccuracies,” Cordray added. “We need to move from screening processes designed to make banks safe from consumers to ones designed to make them safe for consumers.”