New York’s attorney general called on more than 90 banks including units of Toronto-Dominion Bank and HSBC Holdings Plc to revamp customer screening procedures to give poor people better access to financial services.
Following a streak of agreements with several major banks to change how they use screening tools, Attorney General Eric Schneiderman sent letters Monday urging other financial institutions to adopt new standards.
The measure is aimed at helping “unbanked” or “underbanked” populations, which disproportionately include African-American and Hispanic consumers, obtain access to better financial opportunities.
“It is critical that low-income Americans — and New Yorkers in particular — have access to mainstream banking services,” Schneiderman said in a statement. In his letters, Schneiderman said he asked banks to “look closely at the benefits that would accrue to the people of the state, as well as to their institutions, if they were to adopt similar changes to their account screening procedures.”
Credit reporting services used to examine would-be customers’ account histories, such as ChexSystems Inc. and Early Warning Services LLC, caused banks to reject thousands of applicants for minor problems such as isolated bounced checks, according to Schneiderman.
With many financial institutions expanding their use consumer information through such techniques as data mining and customer analytics, they are invariably discovering new insights into the financial lives of more people, even the underbanked and unbanked. Many of today’s more progressive institutions are aware of the potential negative consequences this information can have on low-income consumers, particularly if this information is incomplete, or in some cases wrong. Because of this, some FIs are considering these issues internally when considering legal and compliance policy, which can then help them reduce legal and reputational risk.
Overview by Ed O’ Brien, Director, Banking Channels Advisory Service at Mercator Advisory Group
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