NYAG Widens Access to Bank Accounts, But Still Plenty of Room for Prepaid (Feb. 3, 2015)
New York Attorney General Eric Schneiderman wants to increase access to traditional banking services by getting banks to change their account-opening criteria. But broader access to checking and savings accounts doesn’t mean consumers won’t continue to seek out alternatives, including prepaid cards, which may have more features and fewer fees, according to industry observers.
Citigroup last week became the second bank to reach an agreement with the New York AG’s office, which has been investigating several banks over their use of ChexSystems, a consumer reporting agency that provides screening of bank account applicants but—unlike most credit reporting agencies—reports only negative data. Under Citi’s new policy, set to take effect on March 15, the bank no longer will decline applicants for isolated or minor past issues, such as paid debts or small overcharges. Capital One announced a similar agreement in June 2014.
Schneiderman launched his investigation largely to increase access to banking services for lower-income consumers, thereby reducing the need for high-cost financial alternatives, such as check-cashing and bill pay services, which can entail fees, the attorney general said in a release.
Reloadable prepaid cards are often marketed to consumers who can’t get (or don’t want) bank accounts. But even if banks change their account-opening requirements, it doesn’t mean a bank account always is the best option. Bank account fees have been on the rise in recent years, following regulatory changes to overdraft and interchange. Meanwhile, fees associated with prepaid cards have been heading in the opposite direction as market competition has increased.
“Prepaid had been embraced by many as an alternative to a bank account because it better fits their lifestyle,” according to Doug Bower, president and executive director of the NBPCA. “It’s simple, mobile-friendly, cost–effective and gives them what they need to manage their money,” he tells Paybefore. Bower also notes that consumers often use prepaid cards as a complement to traditional checking accounts, citing a 2014 report from the Federal Reserve Bank of Philadelphia, in which 90 percent of GPR cardholders also reported having checking accounts. “Prepaid will continue to grow and flourish even if banks make it easier for consumers to adopt traditional checking accounts,” he predicts.
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