Santander to end tough screening system for low income applicants

Santander becomes the third bank after Capital One and Citibank to accommodate millions of Americans dubbed the unbanked.

A branch of Santander bank in New York. Santander Bank has agreed to stop using a policy that often kept poor and low-income individuals from being able to open new checking or savings accounts, the bank and New York Attorney General Eric Schneiderman said. — AP

Santander Bank has agreed to stop a policy that often kept poor and low-income people from opening new checking or savings accounts, the bank and New York Attorney General Eric Schneiderman said.

Santander becomes the third bank after Capital One and Citibank to agree to do away with such policies in an effort to accommodate millions of Americans dubbed the “unbanked.”

These individuals do not have checking or savings accounts and must rely on expensive alternatives for everyday banking needs.

The controversy involves ChexSystems, which is used by nearly every bank to screen applicants when they apply to open a new account. ChexSystems is similar to the credit reporting agencies — Equifax, Equilar and TransUnion. But it focuses on bank history instead of credit cards and loans. It keeps a database on whether an applicant has a history of bouncing checks or using overdrafts.

ChexSystems has come under political and media scrutiny recently. The way its systems were used was seen as overly strict. Applicants who may have bounced one check 10 years ago were still being denied a chance to open an account. So were some people who created an overdraft but promptly repaid the bank.

By comparison, most negative items on a consumer’s credit report fall off after seven to 10 years, even bankruptcy.

Living without a bank account can be burdensome and expensive. The “unbanked” have to resort to check-cashing services for their paychecks, often have to pay their utility bills in person instead of online, and have to pay fees when using pre-paid debit cards for every financial transaction, like going to an ATM.

Roughly 10 per cent of all New York households are considered unbanked, the Attorney General’s Office said. Nationwide, the vast majority of the unbanked are poor and minorities. The Federal Deposit Insurance Corp estimates that 21.4 per cent of all black Americans are unbanked and 20.1 per cent of Hispanics are unbanked, compared with the national average of 8.2 per cent.

“Denials like these force low-income Americans — and New Yorkers in particular — to resort to high-cost alternatives to banks, simply because of a small financial misstep in the past,” Schneiderman said in a statement.

Santander, like Capital One and Citi, agreed to take steps to make sure applicants are not rejected for small banking errors. The policies will be effective from September 30 and will be implemented nationwide.

“We believe this change to the screening process for new account openings will make it easier for consumers who might have been denied services based on their banking history ,” Maria Tedesco, managing director of retail banking for Santander, said in a statement.

ChexSystems, which is owned by Fidelity National Information Services, said it was up to the banks how to use its data.

“ChexSystems provides information collected from the financial institutions that are subscribed to its services. ChexSystems does not make any decisions regarding if consumers are granted services,” the company said.

The announcement is part of an ongoing investigation by the New York Attorney General. Citibank announced it would make changes to its ChexSystems policies in late January. Capital One agreed to change its ChexSystems policies in July. — AP

Deutsche Bank, Santander US units may fail Fed test

European banks including Deutsche Bank and Banco Santander are likely to fail the US Federal Reserve’s stress test over shortcomings in how they measure and predict potential losses and risks, the Wall Street Journal reported, citing people familiar with the matter.

Deutsche Bank Trust Corp is expected to be found adequately capitalised by the Fed but will likely receive a warning on qualitative shortcomings, the newspaper said, citing people familiar with the matter.

Santander is also likely to fail for qualitative reasons, rather than because the stress test depleted its capital below regulatory minimums, the journal reported, citing the people. Santander failed its first stress test run last year. Deutsche Bank is undergoing the US stress test process for the first time.

The US Federal Reserve declined to comment. “Deutsche Bank Trust Corporation (DBTC), which represents less than five per cent of Deutsche Bank’s total assets, was pleased to participate” in the stress tests this year, a spokeswoman told Reuters. Santander declined to comment.

The Fed will disclose partial results of the test on March 5 and full results on March 11.

— Reuters