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[Art Deco]

 [image: DealBook - A Financial News Service of The New York
Times]<http://dealbook.nytimes.com/>
  July 30, 2013, 9:17 pm Over a Million Are Denied Bank Accounts for Past
Errors By JESSICA
SILVER-GREENBERG<http://dealbook.nytimes.com/author/jessica-silver-greenberg/>

Mistakes like a bounced check or a small overdraft have effectively
blacklisted more than a million low-income Americans from the mainstream
financial system for as long as seven years as a result of little-known
private databases that are used by the nation’s major banks.

The problem is contributing to the growth of the roughly 10 million
households in the United States that lack a banking account, a basic
requirement of modern economic life.

Unlike traditional credit reporting databases, which provide portraits of
outstanding debt and payment histories, these are records of transgressions
in banking products. Institutions like Bank of
America<http://dealbook.on.nytimes.com/public/overview?symbol=BAC&inline=nyt-org>,
Citibank<http://dealbook.on.nytimes.com/public/overview?symbol=C&inline=nyt-org>and
Wells
Fargo<http://dealbook.on.nytimes.com/public/overview?symbol=WFC&inline=nyt-org>say
that tapping into the vast repositories of information helps them weed
out risky customers and combat fraud — a mounting threat for banks.

But consumer advocates and state authorities say the use of the databases
disproportionately affects lower-income Americans, who tend to live
paycheck to paycheck, making them more likely to incur negative marks after
relatively minor banking missteps like overdrawing accounts, amassing fees
or bouncing checks.

When the databases were created more than 20 years ago, they were intended
to help banks guard against serial fraud artists, like those accused of
writing bogus checks. Since then, though, the databases have ensnared
millions of low-income Americans, according to interviews with financial
counselors, consumer lawyers and more than two dozen low-income people in
California, Illinois, Florida, New York and Washington.

Jonathan Mintz, the commissioner of the New York City Department of
Consumer Affairs<http://topics.nytimes.com/top/reference/timestopics/organizations/c/consumer_affairs_department/index.html?inline=nyt-org>,
says banks’ growing reliance on customer databases has frustrated efforts
to help an estimated 825,000 New Yorkers without bank accounts gain access
to the mainstream financial system.

“Hundreds of thousands of Americans are being shut out for relatively small
mistakes,” Mr. Mintz said.

As a result, many have no choice but to turn to costly fringe operations to
cash checks, pay bills and wire money. Saving for the future, financial
counselors say, can be especially difficult.

The ranks of those without bank
accounts<http://www.fdic.gov/householdsurvey/>have swelled — up more
than 10 percent since 2009, according to the Federal
Deposit Insurance
Corporation<http://topics.nytimes.com/top/reference/timestopics/organizations/f/federal_deposit_insurance_corp/index.html?inline=nyt-org>—
as banks have sharpened their focus on more affluent customers who
typically generate twice the revenue of their lower-income counterparts.
Many banks are closing branches in poor areas and expanding in wealthier
ones, according to an analysis of federal data.

Rejection for would-be bank customers can come as a shock. Tiffany Murrell
of Brooklyn says a credit union denied her checking account application in
September 2012 even though she had a job as a secretary and was up to date
on her bills.

The obstacle, it turned out, was a negative report from
ChexSystems<https://www.consumerdebit.com/consumerinfo/us/en/index.htm>,
a consumer credit reporting firm that provides customer data to virtually
every major bank and credit union in the nation. The black mark stemmed
from a overdraft of roughly $40 in June 2010, according to a copy of a
letter that the 31-year-old Ms. Murrell later received from ChexSystems.
While she repaid the amount, plus interest and fees, before applying for a
new account, the incident, she says, has barred her from opening an account
at nearly every bank she has tried, an experience she called “insulting and
frustrating.”

While many Americans have at least a vague idea that their credit report is
crucial when applying for a loan, few realize that a parallel report is
used for bank accounts.

“Most of my clients have no idea these databases exist, let alone what they
did to end up in them,” said Kristen Euretig, a financial counselor
with Neighborhood
Trust Financial Partners, <http://neighborhoodtrust.org/index.php> a
nonprofit group in New York.

The largest database, founded in the 1970s, is run by ChexSystems, a
subsidiary of FIS, a financial services
company<http://www.fisglobal.com/index.htm>in Jacksonville, Fla.
Subscribers — Bank of America, JPMorgan
Chase<http://dealbook.on.nytimes.com/public/overview?symbol=JPM&inline=nyt-org>,
Citibank and Wells Fargo among them — “regularly contribute information on
mishandled checking and savings accounts,” ChexSystems says on its Web
site. “A consumer may dispute any information in their file and ChexSystems
will facilitate the resolution of the dispute on the consumer’s behalf,”
the company said in a statement. A rival, Early
Warning<http://www.earlywarning.com/index.html>,
which is owned by Bank of America,
BB&T<http://dealbook.on.nytimes.com/public/overview?symbol=BBT&inline=nyt-org>,
Capital One<http://dealbook.on.nytimes.com/public/overview?symbol=COF&inline=nyt-org>,
JPMorgan Chase and Wells Fargo, says roughly 80 percent of the 50 largest
American banks pay a fee to subscribe to its deposit-check service.

“Client banks are focused on leveraging intelligence to mitigate fraud from
going into the system,” said Frank Caruana, the company’s chief marketing
officer.

But the databases are coming under scrutiny from consumer lawyers and
federal regulators, who say it can be challenging to remove inaccurate
information or get copies of the reports, a requirement under federal law.

The Consumer Financial Protection Bureau
<http://www.consumerfinance.gov/>has fielded complaints about the
databases and is determining whether they
comply with the Fair Credit Reporting Act, a federal law meant to stanch
the flow of inaccurate consumer information, according to people familiar
with the investigation. Banks are required to provide a reason for
rejecting an applicant.

Some databases, though, provide scant details of the reason for the
negative mark, according to a review of more two dozen letters. Mr. Caruana
of Early Warning says the company gives the fine details to its clients,
outlining, for example, how much of outstanding debt is principal and how
much is fees.

Culling information from the databases is one prong in an assessment, as
lenders vet potential customers and screen for fraud. Losses from fraud on
new bank accounts surged to $9.8 billion last year, up 50 percent from a
year earlier, according to Javelin Strategy and Research.

JPMorgan says a negative report in ChexSystems will rarely bar someone from
obtaining an account. Others, like Bank of America, Citibank and Wells
Fargo, say they use the information carefully, distinguishing between
people who have made mistakes and those who have a history of fraud. Some
banks have introduced second-chance checking accounts for people who do not
qualify for traditional bank accounts.

Ultimately, Mr. Caruana said, the decision rests with the banks. He noted
the soundness of the reports — of the 50 million the company issued last
year, only 3,600 were disputed for inaccuracy. And banks and credit unions
say that they work to ensure that customers are not penalized for minor
mistakes.

Yet the interviews with officials, consumer advocates and the people denied
accounts offer a starkly different picture.

“We have had too many experiences where even banks that have offered to be
flexible with us find their own internal risk management systems mean that
their hands are tied,” said Mr. Mintz, New York’s commissioner of consumer
affairs.

The problem, said Jerry DeGrieck, a senior policy adviser to Mayor Mike
McGinn of Seattle, is that “lenders just don’t want to take a risk on these
clients.”

Recent regulations, which rein in the fees that banks can charge —
including overdraft protection, a big moneymaker on lower-income customers’
accounts — have made lenders more reluctant to take gambles on customers
with tarnished records, analysts say. Simply put, it is less economical for
banks to provide inexpensive financial services and it is tougher for banks
to generate revenue on lower-income customers who typically maintain small
account balances. Still, banks say they are committed to provide banking
services broadly.

The sting of being rejected, though, can make lower-income individuals feel
like second-class citizens.

“I just don’t understand why they wouldn’t want me,” said Ms. Murrell, the
Brooklyn secretary. “It feels unfair.”

The costs of not having a bank account for seven years — the longest amount
of time that a negative report remains in the databases — can quickly add
up. David Korzeniowski, 23, said an employee at a bank in Lansing, Mich.,
had told him that an overdrawn account reported to ChexSystems very likely
scuttled his chances of a checking account until 2016.

Mr. Korzeniowski, who acknowledges “he made a mistake,” says the fees he
pays for cashing checks, paying bills and wiring money cannibalize the
paycheck he gets from part-time construction work. “Everything is more
expensive,” he said.


-- 
Art Deco (Wayne A. Fox)
art.deco.studios at gmail.com
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