New York’s top prosecutor is investigating some of the nation’s largest banks in connection with their use of credit-reporting databases that disqualify people seeking to open checking or savings accounts â€" an inquiry that has gained urgency as the ranks of the unbanked has swelled in the aftermath of the financial crisis.
The New York attorney general, Eric T. Schneiderman, on Thursday sent a batch of letters seeking information to six banks, including Bank of America, Citibank and JPMorgan Chase, people briefed on the matter said.
The inquiry on Thursday is playing out as a growing number of banks and credit unions tap into the vast repositories of information â€" a record of banking transgressions including bounced checks, overdrawn accounts and fees â€" to guard against risky customers and protect against fraud.
But consumer advocates and state authorities say the databases are disproportionately affecting lower-income Americans, whose precarious financial footing makes them more likely to end up in the databases for relatively small financial errors like amassing fees or bungling a monthly budget.
Concerned that banks might be “improperly denying or otherwise restricting banking access to New York consumers,†Mr. Schneiderman’s office is requesting more information about the use of the databases, zeroing in, for example, on how the lenders ultimately decide whether to accept a customer, according to copies of the letters reviewed by The New York Times.
Negative reports in the databases have effectively banished more than a million lower-income Americans from the financial system, relegating them to a second-class tier in which they are forced to use costly fringe operations to pay bills or cash a check, according to interviews with financial counselors, consumer lawyers and more than two dozen low-income people in California, Illinois, Florida, New York and Washington.
The ranks of those without bank accounts has ballooned â€" up more than 10 percent since 2009, according to the most recent estimates from the Federal Deposit Insurance Corporation.
The databases, Mr. Schneiderman’s office said, could especially harm “African-Americans, Latinos and other minority groups,†a potential violation of state and federal laws governing equal access to credit.
Use of the databases and the problems associated with them were the subject of an article in The Times on Wednesday.
JPMorgan said that a single negative mark in ChexSystems, the largest database, would typically not present a hurdle for someone looking to obtain an account. Others, like Bank of America and Citibank, have said that they cull the information in the databases prudently, discerning between people who have willfully committed fraud and those whose records are marred only by small mistakes.
Some banks have introduced second-chance checking accounts for people who may not qualify for traditional bank accounts. The databases, the banks say, are an important tool to root out fraud, a problem that continues to bedevil them. Losses from fraud on new bank accounts doubled between 2011 and 2012, according to Javelin Strategy and Research, surging to $9.8 billion last year.
People ensnared in the databases say it can be tough to correct inaccurate information or obtain a copy of the report, a requirement under a federal law aimed at diminishing the flow of inaccurate consumer information.
Mr. Schneiderman requested that banks detail the processes in place for consumers to dispute inaccurate information, the people said. His office is also requesting ZIP-code level data for every customer denied an account as a result of the databases between Feb. 1 and July 1 of this year, the people said.
The banks have until Tuesday to schedule a time to meet with the attorney general’s office to further discuss the matter.
