Bank to end tough screening system for low-income applicants
NEW YORK (AP) — Santander Bank has agreed to stop a policy that often kept poor and low-income people from opening new checking or savings accounts, the bank and New York Attorney General Eric Schneiderman said Friday.
Santander becomes the third bank after Capital One and Citibank to agree to do away with such policies in an effort to accommodate millions of Americans dubbed the "unbanked." These individuals do not have checking or savings accounts and must rely on expensive alternatives for everyday banking needs.
The controversy involves ChexSystems, which is used by nearly every bank to screen applicants when they apply to open a new account. ChexSystems is similar to the credit reporting agencies — Equifax, Equilar and TransUnion. But it focuses on bank history instead of credit cards and loans. It keeps a database on whether an applicant has a history of bouncing checks or using overdrafts.
ChexSystems has come under political and media scrutiny recently. The way its systems were used was seen as overly strict. Applicants who may have bounced one check 10 years ago were still being denied a chance to open an account. So were some people who created an overdraft but promptly repaid the bank.
By comparison, most negative items on a consumer's credit report fall off after seven to 10 years, even bankruptcy.
Living without a bank account can be burdensome and expensive. The "unbanked" have to resort to check-cashing services for their paychecks, often have to pay their utility bills in person instead of online, and have to pay fees when using pre-paid debit cards for every financial transaction, like going to an ATM.
Roughly 10 percent of all New York households are considered unbanked, the Attorney General's Office said. Nationwide, the vast majority of the unbanked are poor and minorities. The Federal Deposit Insurance Corp. estimates that 21.4 percent of all black Americans are unbanked and 20.1 percent of Hispanics are unbanked, compared with the national average of 8.2 percent.
"Denials like these force low-income Americans_and New Yorkers in particular_to resort to high-cost alternatives to banks, simply because of a small financial misstep in the past," Schneiderman said in a statement.
Santander, like Capital One and Citi, agreed to take steps to make sure applicants are not rejected for small banking errors. The policies will be effective Sept. 30 and will be implemented nationwide.
"We believe this change to the screening process for new account openings will make it easier for consumers who might have been denied services based on their banking history ," Maria Tedesco, managing director of retail banking for Santander, said in a statement.
ChexSystems, which is owned by Fidelity National Information Services, said it was up to the banks how to use its data.
"ChexSystems provides information collected from the financial institutions that are subscribed to its services. ChexSystems does not make any decisions regarding if consumers are granted services," the company said.
The announcement is part of an ongoing investigation by the New York Attorney General. Citibank announced it would make changes to its ChexSystems policies in late January. Capital One agreed to change its ChexSystems policies in July.