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Forum on access to checking accounts

Today, we held a forum on access to checking accounts in Washington, D.C. The live event has now ended. The event featured remarks from Director Richard Cordray, as well as presentations from consumer groups, federal and local government officials, and industry representatives. We aim to learn more about how the screening system works and how to improve the information and products that are available for consumers.

A recording of the forum will be available here soon.

Access to checking is important

Many people view checking accounts as an important step towards financial stability and economic mobility– particularly for low-income and economically vulnerable households. However, more than ten million households in America are unbanked , meaning they do not currently have a checking account.

Checking accounts provide: a secure way for consumers to:

  • deposit their paychecks,
  • make payments,
  • transfer and hold money, and
  • manage household finances.

Checking accounts can also be an entryway to other financial services like savings accounts and credit products. This can ultimately enable access to longer term financial goals such as auto-and home ownership. Checking accounts often enhance financial capability, upward mobility, and the building of wealth.

Although new financial service products, such as prepaid cards, are becoming more popular and affordable, checking accounts typically offer more features and payment options. As a result, households without checking accounts often spend more time and money managing household finances and meeting day to day obligations than those with checking accounts.

Consumers who struggle to pay their bills each month or who have problems managing their checking accounts risk overdrawing them. This frequently results in stiff penalties. We found that the median overdraft fee was $34 in 2012. Overdraft and non-sufficient funds (NSF) fees account for the majority of checking account fees charged to consumers. These fees quickly add up and consumers who are unable or unwilling to repay what they owe end up losing their accounts. This can have serious consequences for consumers, affecting their ability to open a new checking account for several years. While some accounts are closed because of fraudulent behavior, most are closed due to overdrafts.

Some initiatives intended to help consumers gain or regain access to basic checking accounts cite that having a negative “hit” on a checking account screening report is a primary barrier to getting an account.

How the system works

Many banks and credit unions rely on reports provided by specialty consumer reporting agencies (CRAs) to determine whether to open a checking account for new customers. These specialty CRAs collect information on consumer check writing and account history from financial institutions, including whether a consumer has had a previous account closed. The information may include a record of bounced or returned checks and overdrafts. It is used by financial institutions to decide whether to offer a checking account to consumers, and what kinds of restrictions to place on the account. Policies on what is reported and how it’s reported vary among financial institutions. This makes it difficult for consumers to determine which of their previous account problems might disqualify them for an account.

Learn about issues and roles

At today’s forum, we’d like to shed light on a few things, including:

  • Issues consumers face when trying to regain access to a checking account
  • The role that Credit Reporting Agencies and financial institutions play when consumers apply for a checking
  • Data used as part of the account opening decision
  • How institutions set their risk tolerances
  • Definitions of fraud and improper account usage

We also hope to identify some potential next steps, including:

  • How to increase the accuracy of data furnished to and reported by consumer reporting agencies
  • How institutions can use various screening tools to manage risk without unnecessarily excluding potential accountholders
  • How institutions can tell consumers about their right to know what’s in their account histories and correct any inaccuracies
  • How consumers can access different account products that meet their needs

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