Pressure mounts on ChexSystems Users

January 29, 2015 at 9:22 am Leave a comment

NY Attorney General Eric T. Schneiderman yesterday  announced an agreement with Citibank under which it has agreed to change its policies for prescreening account applicants so that   “applicants are not rejected for accounts based on  isolated or minor banking errors, such as paid debts or a small overcharge.”  Specifically newspaper reports indicate that Citibank will only decline applicants if they have two or more reported incidents of account abuse in recent years.  A similar agreement was reached with CapitalOne earlier this year.

I know there are credit unions that use ChexSystems and similar services .  Their  use is not illegal and the AG’s announcement is certainly not binding on other financial institutions;  however the writing is on the wall and it wouldn’t be a bad idea to examine the criteria your CU uses to disqualify applicants from membership.  To their critics ChexSystems and other similar companies disproportionately impact  the poor  unbanked since these applicants are at greater risk of having  bounced  a check,  for example.  My personal advice would be that you disqualify applicants  based on a clear pattern of account abuse.

I have also  argued in a previous blog that credit unions have a unique obligation to the unbanked and underserved.  Disqualifying  potential members based on past misconduct could undermine that goal at institutions where membership is too restrictive.

Here is a copy of the press release

The limits of Operation Choke Point

In recent years regulators and the DOJ have become increasingly aggressive about pressuring the banking system not to facilitate legal banking activities that may ultimately aid  down stream illegal conduct. .  For example, New York’s  DFS criticized the NACHA system for facilitating electronic payments of Pay Day Loans and some banks stopped opening accounts for gun dealers.

Yesterday the FDIC pushed back against these overly aggressive tactics.  In a letter to FDIC insured institutions it encouraged them to     ” take a risk-based approach in assessing individual customer relationships rather than declining to provide banking services to entire categories of customers, without regard to the risks presented by an individual customer or the financial institution’s ability to manage the risk.  Financial institutions that can properly manage customer relationships and effectively mitigate risks are neither prohibited nor discouraged from providing services to any category of customer accounts or individual customer operating in compliance with applicable state and federal law.”

It further assured them that “Isolated or technical” BSA violations “do not prompt serious regulatory concern or reflect negatively on management’s supervision or commitment to BSA compliance.”

I wonder if NCUA will be issuing similar Guidance? Here is a link

The state  of Monetary Policy

The FOMC  issued a statement following its two day powwow in  the nation’s capital. Even though it gave itself the typically abundant supply of qualifiers and caveats the best reading of the statement  is that the Fed remains likely to raise short term interest rates in the middle of the year.

To me the most telling line in the statement is that “on balance, a range of labor market indicators suggests that under utilization of labor resources continues to diminish.” Why is this important?  Because Chairman Yellen has consistently expressed the view that the most commonly used measures of unemployment haven’t  provided an accurate snapshot of employment conditions facing American job seekers and the under employed.  The generally upbeat assessment of  the broader economy  tells me that the Fed currently is inclined to believe that the economy is now strong enough to withstand slightly higher interest rates as a hedge against the inflation bogey man.

Here is a link to the statement.

And their off…

With Assembly Democrats moving ahead with plans to officially remove  Sheldon Silver as Speaker as early as Monday jockeying for the position has begun in earnest.  The Capitol Tonight Morning Memo is reporting that, Manhattan Assemblyman Keith Wright, who was considered a possible candidate for the Speakership, endorsed Bronx Assemblyman Carl Heastie.  Also Rochester area Democrat Joe Morelle, who will likely be Acting Speaker pending a vote on a permanent replacement for Silver, announced Wednesday that he wants the job permanently.  Another candidate is veteran J Assemblyman Joe  Lentol.



Entry filed under: Economy, Legal Watch, New York State. Tags: , , .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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