This really is depressing — and hits home. I was denied the ability to use my phone to deposit checks because of my credit score. So imagine how much worse it is to be denied access to an actual bank, condemned to the high-priced services of your local check-cashing predators:
Mistakes like a bounced check or a small overdraft have effectively blacklisted more than a million low-income Americans from the mainstream financial system for as long as seven years as a result of little-known private databases that are used by the nation’s major banks.
The problem is contributing to the growth of the roughly 10 million households in the United States that lack a banking account, a basic requirement of modern economic life.
Unlike traditional credit reporting databases, which provide portraits of outstanding debt and payment histories, these are records of transgressions in banking products. Institutions like Bank of America, Citibank and Wells Fargo say that tapping into the vast repositories of information helps them weed out risky customers and combat fraud — a mounting threat for banks.
But consumer advocates and state authorities say the use of the databases disproportionately affects lower-income Americans, who tend to live paycheck to paycheck, making them more likely to incur negative marks after relatively minor banking missteps like overdrawing accounts, amassing fees or bouncing checks.
When the databases were created more than 20 years ago, they were intended to help banks guard against serial fraud artists, like those accused of writing bogus checks. Since then, though, the databases have ensnared millions of low-income Americans, according to interviews with financial counselors, consumer lawyers and more than two dozen low-income people in California, Illinois, Florida, New York and Washington.
Jonathan Mintz, the commissioner of the New York City Department of Consumer Affairs, says banks’ growing reliance on customer databases has frustrated efforts to help an estimated 825,000 New Yorkers without bank accounts gain access to the mainstream financial system.
“Hundreds of thousands of Americans are being shut out for relatively small mistakes,” Mr. Mintz said.
As a result, many have no choice but to turn to costly fringe operations to cash checks, pay bills and wire money. Saving for the future, financial counselors say, can be especially difficult.
The ranks of those without bank accounts have swelled — up more than 10 percent since 2009, according to the Federal Deposit Insurance Corporation — as banks have sharpened their focus on more affluent customers who typically generate twice the revenue of their lower-income counterparts. Many banks are closing branches in poor areas and expanding in wealthier ones, according to an analysis of federal data.