Credit union experts were hesitant to criticize a CFPB plan toreview credit union checking account screening, but emphasizedscreening is needed to prevent fraud and other losses.

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On Wednesday, CFPB Director Richard Cordray said thebureau will review financial institution use of consumerreporting agencies like Chex Systems when screening checking account applications. He also said in his preparedremarks he was concerned by reports banks and credit unionsdisqualified consumers for checking accounts due to certain consmerreporting records, which the CFPB later clarfied to be involuntaryaccount closures and excessive NSF activity.

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Phil Tschudy, media relations manager at CUNA Mutual Group, saidhis firm's insurance policies do not contain specific requirementsfor checking account screening, but added credit unions shouldmanage risk.

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“Our insurance policies, including our fidelity bond, do nothave any specific requirements for the credit union to perform duediligence on prospective members seeking to open an account,” hesaid. “We strongly emphasize the importance of risk management andencourage credit unions to perform due diligence in accordance withthe risk management framework they have built for theirorganization.”

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Tschudy also said the CFPB has not contacted CUNA Mutual Group about creditunions' use of consumer reporting agencies like ChexSystems forchecking account screening.

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NCUA Public Affairs Specialist John Fairbanks told CUTimes the NCUA and the CFPB each have a responsibility toprotect consumers with the goal of making affordable financialservices available, but defended the process of screening checkingapplicants, calling it an accepted practice.

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“Credit unions need to have procedures in place to manage riskand to comply with Bank Secrecy Act requirements for establishing aprospective account holder's identity,” he said. “Reviewingan applicant's credit history is an accepted practice prior toopening a checking account, and credit unions generally giveapplicants opportunities to repair bad credit histories.”

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Michael Coleman, NAFCU director of regulatory affairs, defendedthe checking screening process used by credit unions.

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“Screening applicants for share draft accounts can be animportant tool for credit unions to mitigate against fraud risk,”he said. “In terms of consumers access to traditional bankingproducts, credit unions have unique relationships with theirmembers, and work with their members to provide them with the typesof accounts and products that they want and need, and that makesense for their member.”

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Mary Dunn, CUNA senior vice president and deputy generalcounsel, attended the forum and told CUTimes credit unions want to do as much as possible toprevent fraud.

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“Credit unions that conduct account screening do so in largemeasure to protect their other members,” she said. “As consumerfinancial cooperatives owned by the members, credit unions want todo all they can to minimize fraud against their institutionsbecause the costs of handling issues like fraud are borne by thecredit unions' membership.”

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Marvin C. Umholtz, president/CEO of Umholtz Strategic Planning& Consulting Services, said the CFPB's actions could hurt theconsumers it is trying to help.

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“Federally insured depository institution checking accounts forthe unbanked, underbanked, underserved, low-income populations,etc., are never going to fill the gap that is better handled byApplePay and the Walmart-GreenDot GoBank mobile accessalternatives, not to mention the existing check cashers andothers,” Umholtz said.

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“The more the CFPB and the strident consumer activist groupsmess up the marketplace with restrictions and limitations, thefewer Americans will have access to financial products andservices. Rather than promote financial inclusion, the CFPBhas been the leading federal agency in aggressively promotingfinancial exclusion,” he added.

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