The nation’s largest banks have been using vast databases filled with records of transgressions to effectively bar more than a million low-income Americans from the mainstream financial system, The New York Times reported this week.
Unlike credit reporting databases, which are used to evaluate credit card applicants based on information like outstanding debt and payment histories, these repositories include relatively minor infractions, like bounced checks or overdraft fees, that can keep people from opening a simple bank account.
“I think few people realize that you actually have to qualify for a checking or a savings account,” said The New York Times’ Jessica Silver-Greenberg, the report’s author, on NewsNation Friday. “It’s basic access to the mainstream financial system.”
The databases were created more than two decades ago, said Silver-Greenberg, and were originally meant for banks to be able to root out people who had “willfully committed fraud.”
“They’ve since evolved, though,” she said. Now a mistake made five years ago can keep someone from opening a bank account anywhere.
“If you’re not able to get access to a checking or savings account, you’re forced to go to some pretty costly outlets, like check cashers, payday lenders, even to do basic things like wire money or pay a bill,” said Silver-Greenberg.
Those outlets, with their high fees, have a particularly onerous impact on lower-income Americans. And as the report notes, those who live paycheck to paycheck are more likely to make those minor errors that keep them out of banks in the first place.
New York Attorney General Eric T. Schneiderman has opened an investigation into the matter.
“The attorney general in New York is concerned that the way that banks are using these [databases] are disproportionately impacting low-income Americans, but also African-Americans, Latinos,” said Silver-Greenberg. “It might be a violation of federal and state civil rights law.”