Photo (cc) by Keoni Cabral
Are you one of the million or so Americans who can’t get a bank account? If you are, you know that banks — not only your bank but all banks — can reject you if they think you’re more trouble or expense than you’re worth.
Banking customers’ names are gathered in “little-known private databases used by the nation’s major banks,” The New York Times reports.
More than a million customers have been rejected for services because of black marks against their names in these databases, the Times says. One thing that most blacklisted consumers have in common: They’re low-income.
These are not credit-scoring systems used to assess you for a credit card or mortgage. These are different databases, used internally by banks. At least initially they were developed to fight fraud. But the databases have evolved, also, into a risk-management tool that banks reportedly use to reject customers who might cost the bank more than their business is worth.
CNNMoney tells the stories of four people rejected by their banks. It learned that:
About 80 percent of the nation’s banks use information from the [ChexSystems] database to screen bank account applicants. Most negative information on a person’s report stays in ChexSystems’ database for five years, according to ChexSystems.
When your name gets a black mark on one of these databases — for reasons ranging from too many overdrafts or bounced checks to identity theft (one man told CNN that he was rejected after ID thieves drained his accounts, causing bank fees to pile up) — suddenly life gets very difficult. Banks may shut you out from their services for up to seven years.
Bank accounts: A staple of modern life
Being shut out from the mainstream banking system is no small inconvenience. Bank accounts are a necessity of modern life. Electronic payments — credit cards, debit cards and electronic bill payments — are rapidly replacing cash (and checks), and bank alternatives — check-cashing companies, pawnbrokers and payday lenders — can be time-consuming and costly.
David Korzeniowski, 23, a part-time construction worker, told the Times that since a financial “mistake” caused him to be rejected by mainstream banks, fees for paying bills, cashing checks and wiring money have eaten up a large part of his paycheck. “Everything is more expensive,” he said.
The Times spoke with Jonathan Mintz, commissioner of New York City’s Department of Consumer Affairs:
“Hundreds of thousands of Americans are being shut out for relatively small mistakes,” Mr. Mintz said.
As a result, many have no choice but to turn to costly fringe operations to cash checks, pay bills and wire money. Saving for the future, financial counselors say, can be especially difficult.
Try to clear your name
If you’ve been rejected by banks, the bitter truth is that you may not have many options. But there are some things you can do.
The Fair Credit Reporting Act requires a bank to disclose why it rejected your business. That doesn’t mean the explanations will be clear or easy to understand, however. Make sure that, at the minimum, any information you get from the bank tells you the name of the company that has flagged a problem.
Get that company to give you a copy of your report. Read it carefully, looking for errors. If not corrected, negative information can remain for five years on the report. So you’ll want to dispute anything that’s incorrect. ChexSystems’ consumer assistance page, for example, explains how to file a dispute with that company. Consumers are entitled to one free annual ChexSystems report.
In reality, consumer advocates and federal regulators told the Times, it can be difficult to get errors removed from your report – or even to get a copy of your report in some cases. “Some databases … provide scant details of the reason for the negative mark, according to a review of more [than] two dozen letters,” the Times writes.
A “second-chance” account
Some 15 percent of customers who are rejected by their banks are offered a so-called “second-chance” bank account, CNNMoney says. That article describes second-chance accounts offered by Wells Fargo, PNC and Chase.
The downside: While these accounts do give you access to the banking system and a way back into mainstream banking, they’re expensive.
“Consumers who would complain about the fees have to recognize that they’ve earned them, and when your financial service options shrink, the prices go up,” John Ulzheimer, CEO of SmartCredit.com, told CNN.
Find the right prepaid card
If you can’t get – or don’t want – a bank account, prepaid cards are another route that offers the convenience of credit cards. In fact, the right prepaid card might be cheaper than a second-chance account.
Caution: Choose a prepaid card very carefully. They can be loaded with fees. Also, understand that using a prepaid card will not help you build your credit score, as a credit card would.
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