CFPB To Banks: Offer More “No Overdraft” Checking Accounts, Provide Accurate Credit Information

Some 10 million Americans are considered “unbanked,” often because they are believed to pose too high a credit risk for a bank to offer them a standard checking account. But the federal Consumer Financial Protection Bureau believes many of these people could be brought into the fold if more banks were to offer lower-risk deposit accounts that provided the benefits of a checking account without being a risk to the financial institution.

In an attempt to increase the number of Americans using deposit accounts while cutting down on the billions of dollars in overdraft charges consumers are hit with every year, the CFPB sent letters to 25 of the nation’s largest banks, urging them to create or promote deposit accounts designed to meet consumers’ financial needs.

According to the letters [sample PDF], the new accounts should not authorize users to spend more money than they have, effectively eliminating the possibility of overdraft charges for consumers. It also means the banks would not be at risk for funding transactions that the customer’s account couldn’t cover.

“These products can help consumers manage their spending and maintain their accounts in good standing,” the CFPB said in its letter. “Further, by limiting risks to financial institutions, products that are designed to help consumers avoid overdrafts also enable account providers to relax their screening criteria and accept more account applicants, thus improving consumer access to the banking system on a broader scale.”

While the CFPB says that some institutions do offer such low-risk accounts, such as “no-overdraft” accounts, a recent review found that most do not appear to offer any deposit accounts that ensure consumers can’t overspend.

And banks that do offer these products tend to not do much promotion for them, resulting in consumers knot knowing they have this option.

“We further urge institutions that already offer such accounts to feature them among their standard account offerings both in their branches and online,” the letter states. “The lack of marketing for these products, in particular, has lessened their visibility and undermined their rate of uptake among consumers who might otherwise benefit from their availability.”

In a related action on Wednesday, the CFPB issued a bulletin [PDF] reminding banks and credit unions of their obligations when it comes to accurately reporting information to credit reporting agencies.

Banks are required to have established and implemented reasonable written policies and procedures regarding the accuracy and integrity of information, both negative and positives, related to consumer accounts.

Such policies and procedures are intended to protect against the furnishing of inaccurate information that could potentially cause adverse consequences for consumers, such as being denied a loan at a more favorable interest rate or being unable to open a transaction account.

“The supervisory experience of the Bureau suggests that some financial institutions are not compliant with their obligations,” the bulletin says referring to a recent supervisory highlight that found at least one institution failed to have policies in place, and violated laws requiring banks to handle disputes.

The CFPB says it will continue to monitor furnishers’ compliance with regulations, and if an institution is found to be in violation, the Bureau will take appropriate enforcement action.

“Banks and credit unions should expect accurate information from checking account reporting companies to make fair assessments of deposit account applicants,” the bulletin states. “If the system is tainted with incomplete, inconsistent, and inaccurate information, banks and credit unions cannot make informed decisions.”

Consumers interested in learning more about low-risk checking and prepaid accounts, how to request credit account histories, and how to dispute items with their banks can find more information though the CFPB’s newly related resources.