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From Banking and Finance Law Daily, February 3, 2016

CFPB fears lack of account options sidelining consumers

By Katalina M. Bianco, J.D.

The Consumer Financial Protection Bureau has taken steps intended to boost checking account options for consumers. The bureau says it fears that lack of access to lower-risk accounts is keeping consumers out of the banking system. To address this issue, the bureau sent a letter to the CEOs of the 25 largest retail banks urging them to make available, and widely marketed, lower-risk deposit accounts that help consumers avoid overdrafts.

“Consumers should not be sidelined out of the basic banking services they need because of the flaws and limitations in a murky system,” said CFPB Director Richard Cordray. “People deserve to have more options for access to lower-risk deposit accounts that can better fit their needs.”

In his prepared remarks for a field hearing on checking account access, Cordray said that there are nearly 10 million unbanked households that have no checking or savings accounts. Some consumers may have been rejected when they tried to open an account before, or they might have lost an account after it became overdrawn and they were unable to recover, Cordray said. He noted that overdraft protections for checks and electronic transactions, offered more regularly since the 1980s, have allowed institutions to collect more fees and are a “significant reason why many consumers incur negative balances.” Too many overdraft problems is another reason why consumers have given up on accounts, the director said.

Letter to banks. The CFPB noted in its letter to the bank CEOs that currently either an applicant passes a standard screening process to obtain an account after identifying any credit risks posed by the applicant’s history of misuse or mishandling of some prior account, or the applicant is blocked from accessing the banking system altogether. The bureau suggested a third possibility—offering all applicants a lower-risk account, whether a checking account or a prepaid account. Because the account is lower-risk, applicants would not pose the same level of risk to the institution. Further, applicants need not be screened out of the banking system by applying the same risk thresholds that are used to determine eligibility for a standard checking account.

The bureau also urged banks and credit unions that do not currently offer transaction accounts designed to help consumers avoid overdrafts to do so. Institutions that already offer such accounts should feature them among their standard account offerings both in their branches and online. The CFPB said that the lack of marketing for these products has lessened their visibility and undermined their rate of uptake among consumers who might otherwise benefit from their availability.

Screening inaccuracies. The CFPB also is concerned with inaccuracies that can occur when institutions screen potential customers. CFPB Compliance Bulletin 2016-01 warns banks and credit unions that “failure to meet accuracy obligations when they report negative account histories to credit reporting companies could result in Bureau action.”

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