Photo (cc) by CarbonNYC

Imagine having a few bounced checks from your college years (which you paid back, plus the overdraft fees) come back to haunt you years later, preventing you from opening a new bank account. Sounds harsh, right?

It’s the unfortunate reality for more than 1 million Americans who have essentially been banned from the conventional financial system because of overdrafts and bounced checks – common offenses for young and low-income consumers. Private consumer databases like ChexSystems keep a record of such transgressions. Says The New York Times:

Such databases, used by Bank of America, JPMorgan Chase and other big banks, were intended to weed out serial fraudsters. Now, regulators say, banks are screening out potential customers and swelling the ranks of the so-called unbanked — the roughly 10 million households in the United States that lack even a basic bank account.

Complaints that banks were using the databases to screen potential customers and deny service to many poor consumers got the attention of Eric T. Schneiderman, New York’s attorney general. Schneiderman’s office began investigating banks to see if they were improperly denying or restricting access to consumers, the Times said.

Schneiderman’s efforts are starting to pay off. Capital One agreed Monday to use ChexSystems solely to restrict customers who end up on the database for fraud.

In other words, Capital One is going to start using the database for its intended purpose, rather than blacklisting some people for past bounced checks or overdrafts. According to Bloomberg:

Schneiderman praised Capital One’s willingness to “eliminate an unnecessary barrier to opening a checking or savings account” and urged other banks to follow its lead.

Capital One, the fifth-biggest U.S. credit card lender, was pleased the agreement worked to “expand access to critical banking services to all New Yorkers,” Kleber Santos, a bank official, said in a statement.

Capital One’s new policy will be implemented nationwide by the end of the year, Bloomberg said.

I overdrew my checking account a few times in my college days. I was too lazy to balance my checking account. I can’t imagine how upsetting it would be to have mistakes I made as a teen or young adult impact my ability to open a new bank account years later.

Is this a step in the right direction for Capital One? Do you think other big banks will follow its lead? Share your thoughts below or on our Facebook page.