For the first time banks are being scrutinized for blacklisting vulnerable consumers from opening a basic checking or savings account. Alternatives to mainstream banking generally open consumers to predatory or more costly services with less consumer protections. New York’s attorney general this week becomes the first government authority according to The New York Times, to go after banks for using the ChexSystems database to weed out consumers who’ve bounced checks or overdrawn an account–mistakes frequently made by young people just starting out or those who are financially struggling. The move signals increasing interest on the part of regulators to examine the many ways that companies are using Big Data to hurt consumers who often aren’t aware data is being collected, by whom and for what purpose.
New York’s interest in at least six banks’ Big Data practices, including Capital One, comes little more than a month after the Obama administration drew attention through its first-ever report on companies’ data collection practices. It calls for increased privacy laws.
Says NYC’s consumer affairs commissioner to The Times about how banks are using ChexSystems data, “We are extremely concerned about it because people who have made small errors are driven onto the margins of the financial system, where they really can’t save for the future.”
The ChexSystems database was originally intended to weed out serial fraudsters. Most people don’t even know they can order their ChexSystems report. Learn more using this handy Fool guide–and order a copy of that report.