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Consumer Watchdog

Capital One No Longer Focused on ChexSystems

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

 

On Monday, Capital One reported that it will no longer use ChexSystems to stop people with a history of overdrafts or bounced checks from opening checking accounts. If you are like most people, you may be asking, what is ChexSystems and how does it impact me?

Overview of CheckSystems

ChexSystems is just like a credit bureau, except it only deals with checking and savings accounts. The bureau captures the following information:

  1. Inquiries: if you try to open a checking or savings account, your bank will pull a ChexSystems report (just like a bank pulling a credit report when you apply for a loan).  Every inquiry is recorded on your record.
  2. Bounced Checks: certain retailers, collection agencies and check cashing companies will report bounced checks to a company called Certegy. ChexSystems receives information directly from Certegy Check Services and includes it in your report. Chex is also quite clear: they are not responsible for the validity of the information.
  3. History of Checks Ordered:  some banks may report any time that you order checks
  4. Negative Information: banks can report “mishandled” account information to Chex. That can include accounts that were closed (for example, for excessive bounced checks) or accounts that have unpaid overdraft or other charges.

Here is the shocking part: banks get to decide what and when to report to ChexSystems. One bank may decide to report any checking account that is closed, even if the balance is only -$12 (and the written off balance is only fee income). Another bank may only report accounts that have a very negative history (hundreds of bounced checks and a negative balance of $300 or more). When to report is at the complete discretion of the banks. When discussing ChexSystems, a senior banker told me: it is the dark side.

How does it impact me?

Most people only find out about ChexSystems when they try to open a new checking account and are declined.

Once you end up on the negative list of ChexSystems, it may become impossible to open a new checking account. Again, it is up to the bank to decide how to use the information. But, a single negative item (one closed, uncollected account) could make it very difficult to open new checking accounts.

The negative information stays on your ChexSystems report for 5 years.

How can I see what is on my report?

You can actually get a free report every year. Visit the ChexSystems website and request your free report. They will send you a paper copy of your report (yes, they use snail mail).

What if there are mistakes?

Once you receive your free report, you may see items that don’t look right. The most common reasons are ID theft (someone opened an account in your name and bounced checks) or bank error.

Visit this ChexSystems website to dispute records that are not correct.

Warning: If you want to dispute “Retail Information” (this will be clearly marked on your ChexSystem report, and it relates to checks that bounce at certain retailers or collection agencies), then you need to call Certegy directly. Their phone number is 1-866-543-6315. You can also call this number to request a copy of your Certegy report.

If you are not satisfied with the response that you receive, then you should leverage the CFPB Complaint service.  (The Consumer Finance Protection Bureau, part of the federal government).  You can complain online.  Just select “credit reporting.”  Not all complaints are treated equally by the banks, and the CFPB means that you have the government on your side, which can help improve your chance of success.

Capital One

So, is Capital One being a good corporate citizen by no longer using Chex to stop an account from being opened? The decision came after the New York Attorney General began investigating the use of ChexSystems, and its impact on low-income individuals who are blocked from the banking system. So, we don’t think this was their idea. But, they are the first bank to do this.

We applaud Capital One for agreeing to waive the requirement. A single mistake should not keep you out of the banking system forever.  However, we would like Capital One to go even further.  They could completely shake up the overdraft market.

And they don’t need to look far for inspiration. CapitalOne 360 is the online bank (formerly ING Direct) that:

  • Provides you with an overdraft line of credit.  You always know how much credit you have available (there is no guessing game)
  • Does not charge a transfer fee for using the line of credit
  • Only charges interest for the days and amount that you are borrowing.

If you go overdraft one time, for $100, and pay back the money in 15 days, then it would only cost you $0.46 at Capital One 360.  However, the same overdraft in a Capital One branch would cost $35. And at Bank of America, it would cost $70 (because of extended overdraft fees).

Capital One has a chance to really transform the market. We hope they follow their own example, and do just that.

Find out the 8 things you need to know about ChexSystems here

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at nick@magnifymoney.com

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Consumer Watchdog

College Students Be Wary of Higher One and Their Fee-Riddled Take on Transparency

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Higher One, a financial institution heavily focused on refund management for financial aid, claims: “What makes us different at Higher One is our singular focus on education and a commitment to open communication, transparency and choice.”

Why shouldn’t an 18-year-old college student believe them? Higher One’s “About Us” page is filled with logos of prestigious looking awards from companies and media outlets like Deloitte, Ernst & Young and Fortune. Testimonials throughout the site – notably from administrators instead of college students – tout the simplicity of the Higher One experience.

Colleges can use Higher One to distribute financial aid refunds to students, instead of cutting paper checks to individuals. Pretty flow carts on their site make it all seem just so easy, and Higher One says the refunds are distributed based on student preferences.

Hop over to the “In the news” section, and the company highlights their work in the field of financial literacy. But there are some glaring omissions of Higher One in the news:

FDIC Announces Settlements With Higher One, Inc., New Haven, Connecticut, and the Bancorp Bank, Wilmington, Delaware for Unfair and Deceptive Practices – FDIC

In 2012, Higher One and The Bancorp Bank, Wilmington, Delaware, reached a settlement to pay out $11 million in restitution to approximately 60,000 students for the financial institutions’ unfair and deceptive practices. One of those charges was allegedly strong-arming students into signing up for bank accounts with a Higher One partner bank instead of a financial institution of the student’s choosing.

According to the FDIC’s press release on the issue, those practices also included:

  • Charging student account holders multiple non-sufficient fund (NSF) fees from a single merchant transaction
  • Allowing these accounts to remain in overdrawn status over long periods of time, which then racked up more NSF fees
  • Collecting the fees from subsequent deposits to the students’ accounts

In 2012, the Higher One attempted to pacify concerns by changing their practices pertaining to overdraft charges and removing misleading wording in their marketing materials. Or simply put, that’s why they have “dedication to transparency” stated on the “About Us” page.

Merely two years later and Higher One is back under investigation and bringing Chicago-based bank, Cole Taylor, with them.

Higher One, Top Campus Debit Card Provider, Faces Investigation – Huffington Post

Five months before Higher One’s first tussle with the FDIC, Cole Taylor signed a five-year contract to handle deposits from college students working with the financial aid refund company. The partnership only lasted until February of 2013.

Why would Cole Taylor want to work with Higher One?

For all those deposits of course!

Higher One is not a bank, so they need a bank partnership in order to get FDIC protection (or insurance). A bank will happily take all those deposits Higher One sends over, especially because Higher One handles the customer service, processing and administration of the accounts.

In the case of Cole Taylor, the bank saw a massive uptick in deposits by partnering with Higher One. In the Taylor Capital Group 2012 annual report, the company disclosed just how much of an increase they saw from college students being directed to their bank.

“Average noninterest-bearing deposit balances during 2012 increased $346.8 million, or 53.3%, to $997.5 million, compared to $650.7 million during 2011. The increase in noninterest-bearing deposits was largely due to an increase in consumer checking accounts resulting from a new relationship with an organization that provides electronic financial aid disbursements and payment services to the higher education industry.”

How does Higher One nickel-and-dime college students?

For a company dedicated to the “mission of student success”, they certainly make it difficult for students already in debt to easily access their money without incurring fees.

For example, Higher One charges a fee of fifty cents for using a bankcard as a debit card instead of as a credit card. If a student wanted to get cash back at a store, they’d be charged $.50 which is certainly much cheaper than the upwards of $4.50 to use a non-Higher One ATM. But it’s still fifty cents more than plenty of bank-offered debit cards.

Webster University, a Higher One client, informs their students about ways to avoid fees on the University’s website, even advising students to use their cards as credit rather than debit to avoid fees.

The full list of fees are detailed on the school’s website and include $2.50 charge at non-Higher One ATMs on top of whatever the ATM owner charges, $.50 per debit card transaction, $21 fee to replace a card and $29 overdraft charge on the first violation with $38 for subsequent overdraft charges.

What’s happening to Cole Taylor and Higher One?

Both institutions are under investigation from the Federal Reserve Bank of Chicago, even though Cole Taylor severed their ties with Higher One relatively quickly after Higher One’s first deceptive practices investigation. The Federal Reserve Bank of Chicago already determined Cole Taylor “engaged in a deceptive practice relating to the checking account opening process.”

Cole Taylor will likely have to pay penalties for engaging in unlawful financial practices and possibly pay restitution to the college students impacted by their behaviors.

According to the ruling from the Federal Reserve, the Cole Taylor has stated that Higher One is contractually obligated to reimburse them for any restitution that would need to be made, which could cause a loan default for Higher One.

Higher One is currently in business with WEX Bank, headquartered in Utah, and mentioned in the fine print on Higher One’s new website, MyOneMoney.com. It’s almost as if they’re deliberately trying to split away from their original branding. Outrage towards both Higher One and WEX Bank can be found scattered around various chat rooms, message boards, student advocacy websites and notably – Yelp.

In time, we’ll learn exactly how much Cole Taylor and Higher One will need to pay the victims of their scheming.  But for now, we see an example of how a business “created by students, for students” can fall so far from their original mission after being seduced by the almighty dollar.

Have you experienced deceptive, predatory practices from Higher One or a similar institution? Let us know in the comment section or via social media (Twitter, Facebook, Google+). 

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Erin Lowry
Erin Lowry |

Erin Lowry is a writer at MagnifyMoney. You can email Erin at erin@magnifymoney.com

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Consumer Watchdog

Shame on First Premier Bank: You get an F

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Updated November 11, 2014

At MagnifyMoney, we reward transparency, which is why we have established our Magnify Transparency score. We scrutinize financial products harder than those drug-sniffing dogs at an airport investigate your luggage. Those that can stand up to our rigorous testing and still prove to be transparent are awarded an A.

Unfortunately, it’s time we bring a failure to your attention: First Premier Bank

When I read First Premier’s claim that they wanted individuals “to receive a second chance when it comes to their finances,” my shady business radar went off.

There is nothing that is more repugnant to me than a financial institution preying on the vulnerable. And the credit cards offered by First Premier bank do just that. They serve no purpose other than to exploit people in financial difficulty.

Lets take a look at their MasterCard offering:

  • Step 1: Apply for a credit card, and pay a $95 processing fee. Yes, $95 just to apply for a credit card!
  • Step 2: Pay a $75 annual fee for the credit card.

As the bank admits, most credit cards only come with a $300 credit limit.  So, you have now spent $170 to receive a $300 line.  So, you will only have $130 of available credit.

Oh, and want to know the APR on that card?  A whopping 36%!

In Year 2, the annual fee reduces to $45.  But, wait.  You then have to pay $6.25 per month as a monthly servicing fee. That is another $75 per year.

And it still gets even worse.  If they increase your credit limit, they will charge you 25% of the limit as a fee.  So, if they increase your credit limit from $300 to $400, you will be charged a $25 fee.

This type of product is outrageous, and we can’t believe they are allowed to exist.  Even worse, the South Dakota Hall of Fame recently inducted Miles Beacom, First Primer CEO, into their club of famous and influential people from the state.

Why do they charge these fees?

There are 3 reasons why they charge these fees:

  1. By giving out a low credit line ($300) and then charging most of the credit line with fees ($170), First Premier is not actually giving out much credit at all.  This is a deceptive practice, which means the plastic is a way to charge high fees with minimal credit extended.
  2. People in difficult situations often under-estimate their options.  First Premier is taking advantage of that bias.
  3. Direct Mail offerings are easily misleading.  First Premier gets most of their business from Direct Mail – and people do not understand from the marketing how much they are actually going to pay ($170) in order to receive a low credit limit.

We find the business practices of First Premier abhorrent.  They deserve the F that we are giving them.  You won’t find any of their cards on our Balance Transfer or Cash Back tables.

I have a First Premier Card – what should I do?

Your goal should be to get out of that product as soon as possible.  Find a way to pay off the debt and close the account.

A decent way to pay off the debt would be the Wal-Mart Discover Card.  This credit card will accept FICO scores in the 500s.  You can do a balance transfer with a 3% fee and have an interest rate of 22.9%. That may seem high, but it is considerably lower than First Premier.

Be sure to keep keep an eye on your credit score.  Once it gets to the mid-600s, there are other great options out there for you.

And, we would love for you to do one more thing.  Complain to the CFPB.  If you are paying more fees than you think you should be paying – then go to this website: http://www.consumerfinance.gov/complaint/

Make a complaint.  Let the CFPB know how badly you have been treated.  It is sad that this company is allowed to make money the way that it does.  And it is even more depressing that the South Dakota Hall of Fame decided the CEO was worth honoring.

If you have had a bad experience with First Primer Bank (or any experience at all), we would like to hear from you. Please email us at info@magnifymoney.com or tweet us at @Magnify_Money. Let us know if you have another company or financial product you’d like Goofski to sniff out.

 

 

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at nick@magnifymoney.com

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Consumer Watchdog

Stop the madness: 6 ways to make overdraft pricing fair

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Dear Banks,

At MagnifyMoney, we were shocked to see that banks are charging effective APRs in excess of 1,000% for short-term loans.  We encourage you to consider our wish list below.

1. Stop charging to decline electronic transactions.  Declining an electronic transaction doesn’t cost you a thing.  Yet, you charge me $35 for this service.  If my gym sends a recurring electronic transaction, and you decline that transaction (electronically), then you shouldn’t be making $35.

2. Tell me my overdraft limit.  I know that you have assigned a credit limit for me, and it averages between $200 and $1,000.  (The CFPB told me that in their report, but I also worked at a bank and know that is the case).  Can you please tell me what my limit is?  That way I know my buffer and can plan accordingly.  Don’t tell me it is more complicated – because it isn’t.  When I don’t have information, I live in a constant state of stress. I know you don’t want to cause me unnecessary stress.

3. Stop charging fees and start charging interest.  When you approve an overdraft, you are giving me a loan.   Please charge me an interest rate on my loan, not a flat fee per incident.  Can you really justify charging me $35 for a $6 loan?  I understand personal loan fees: you have to cover the cost of acquisition and underwriting.  But I cannot understand the reason for this fee, other than excessive profiteering.

4. Charge a fair interest rate on my line of credit.  Nothing in life should be free.  Short-term borrowing is a convenience and a service, and you have every right to charge for it.  As a bank, you probably pay (on average) 2% to borrow your funds.  You need to make a good margin.  I believe 9.99% would be a good starting point, earning a healthy return.  If I have a bad credit history (or not much of one at all), you can charge more.  But be transparent about the pricing.

5. Stop the overdraft death spiral.  When you increase the price of something, fewer people use it.  In the case of a loan, the more you increase the price, the less it is used as a product of convenience – and the more it is used as a product of desperation.  You depend upon overdrafts for revenue. When the government gave us the right to opt out on Debit and ATM overdraft (about 40% of transactions), you increased the fees on everything else by about 40%.  Coincidence?

6. Don’t make me recommend a payday lender.  As a retail bank or a credit union, you should have the ability to put payday lenders out of business.  You already have the customers, so there is no acquisition cost.  You have a ton of data between my account history and my credit bureau.  You have a low cost of funds.   I have no doubt you can put them out of business, if you want to.

We understand you have to make a profit, but we’d like to see higher-levels of transparency (and general decency) for your customers.

Sincerely,
Nick and the MagnifyMoney Team

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at nick@magnifymoney.com

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