Capital One to Change Credit Policies for Underbanked Consumers in New York

Regulators’ attention is starting to focus in on how banks make use of credit reporting data to screen potential customers for credit-worthiness. Capital One became the first bank to respond by announcing today that it has agreed with New York State regulators to change its policies for using ChexSystems, a credit-reporting database that banks use to evaluate risk in customers opening new checking and savings accounts.

Regulators are concerned that screenings from ChexSystems and other credit bureaus unfairly block unbanked and underbanked customers from opening new accounts, a statement from the office of the New York State attorney general said. The credit bureaus often judge customers to be risky for minor errors such as over-drawing a checking account or bouncing a check, the statement explained.

[For More On Underbanked Consumers, Check Out: How to Reach the Underbanked with Mobile Check Deposit]

Those customers are then forced to turn to other, more costly, options (such as check cashiers) for financial services. The attorney general’s statement cited a 2010 study in New York City that found that more than 825,000 residents in two lower-income neighborhoods -- Jamaica, Queens and Melrose in the Bronx -- did not have bank accounts, and paid more than $19 million per year for check cashing services.

Studies have found that more than 3 million New York households are unbanked or underbanked, the statement said.

The agreement between Capital One and New York State is the result of an investigation by the office of New York State attorney general Eric Schneiderman into banks’ use of credit bureau databases, according to media reports.

The Consumer Financial Protection Bureau is also “monitoring” how banks use credit bureau screenings to take on new customers, a spokeswoman for the bureau told the New York Times.

Jonathan Camhi has been an associate editor with Bank Systems & Technology since 2012. He previously worked as a freelance journalist in New York City covering politics, health and immigration, and has a master's degree from the City University of New York's Graduate School ... View Full Bio