New Account Applicant Screening That Mitigates CFPB Concerns

May 27, 2015

According to a recent FDIC study, one in thirteen U.S. households are classified as “unbanked,” meaning they don’t work with an insured financial institution [FI], while another one in five households are categorized as “underbanked,” meaning they have an insured FI account, but use “non-FI alternatives” for their banking needs.

Those two categories include nearly 70 million adults.

Meanwhile, the Consumer Financial Protection Bureau (CFPB) has expressed concerns that the current methods for screening new account applicants by FIs may actually be keeping qualified individuals from opening checking accounts. The agency has made it clear that – for most consumers -- checking accounts are not inherently credit vehicles, but instead are products for depositing and transferring funds. The CFPB is concerned that new account screening solutions that rely on credit performance could result in consumers with poor credit history being excluded from basic financial services. The CFPB is also concerned with the use of negative-only data resulting in binary decisions (i.e. yes/no) in new account screening.

FIs recognize the importance of expanding their customer base. They also recognize regulators’ request for inclusive products – products that suit a broader array of consumers, including those that might be characterized as unbanked or underbanked. However, FIs must also manage risk and control fraud losses.

The question becomes how to screen customers to determine which products and services best meet their needs while also managing risk.

The answer is to find screening tools that use accurate, up-to-date, comprehensive data that can both identify the needs of consumers while also identifying the rare instance of potential fraud. When exploring these solution, banks must keep in mind that regulators also want to ensure that consumers have options to easily dispute or correct bad data that is used within screening tools.

For more than two decades, Early Warning, has been at the forefront of using up-to-date, comprehensive data to enable FIs to broaden their customer base while meeting regulatory requirements.

At Early Warning, we work with thousands of FIs that subscribe to the belief that data sharing is the most effective way to stay complaint and keep fraud at bay. Early Warning’s collaborative data set that fuels Early Warning’s new account screening solutions is governed by Operating Rules that clearly define how the contributed data may be used within the FI to manage fraud and risk and is subject to strict accuracy requirements and validations. As always, consumers have the right to access their consumer report and dispute any information they believe to be inaccurate.

Change/Improve/Enhance the Ways in Which Consumer Reports are Being Used

Identity Chek® Service from Early Warning uses a broad array of positive and negative data, both from direct FI contributors and third party data sources (NO credit performance data is included). This provides FIs with a 360o view of the consumer’s behavior across deposit accounts and allows for more nuanced decisions in account screening.

Later this year, Early Warning will introduce New Account Scores as part of Real-time Identity Chek Service. New Account Scores indicate the likelihood of first party fraud or account default within the early tenure of a new account opening. Consistent with CFPB concerns, New Account Scores eliminate binary decisions and allow FIs to select appropriate products and privileges.

Also later this year, Early Warning will introduce ID Confidence Score as part of Real-time Identity Chek Service, a statistically derived score indicating the likelihood that the individual applying for the account is presenting his or her true identity information.

The need to provide the underbanked and unbanked with fair and broader access to checking accounts is a challenge recognized throughout the industry. Balancing risk with regulatory concerns may seem a difficult challenge to overcome. However, advanced new account screening tools developed using the most comprehensive and accurate data sources can provide FIs with the ability to open more accounts while simultaneously mitigating fraud and risk.

About the Author:
Robin Love is currently a Vice President within the Authentication Product Solutions group at Early Warning. Robin’s product management and business development experience spans over 25- years within mobile, internet and financial services technology companies.

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