A couple months ago I wrote a blog post titled Eliminating Checking and Savings Account Debt in Bankruptcy. In it I introduced the specialty consumer reporting agencies—ChexSystems and Early Warning Services—which specifically collect information on consumers about any involuntary closures of their checking accounts, check-writing, and checking and savings account history, and do so on behalf of banks and other financial institutions. These institutions in turn refer to this kind of data about consumers before opening new accounts with them.
If you've been denied when you've tried to open a checking and/or savings account, you are not alone in having this problem. About 9 million U.S. households have no bank or credit union accounts. In a recent year an estimated 2.3 million Americans who applied for bank accounts online were rejected, and that does not count those who were rejected after applying personally at bank branches and through other more traditional methods. According to ChexSystems, which has more than 300 million people in its database, about 20% of applicants do not qualify for standard checking accounts.
It may be at least some consolation to hear that recently there has been a greater focus on this area among federal regulators. In October 2014 the federal Consumer Financial Protection Bureau sponsored a "Forum on Access to Checking Accounts" in Washington, D.C., about how financial institutions' account screening policies impact consumers. One purpose of this Forum would likely make sense to you if you've struggled to open an account: to look for "ways that account screening [by financial institutions] can move beyond the use of specialized consumer reports as crude 'black lists' where consumers are turned down for an account simply because their name appears on the list." If you've not been able to open a bank account, you likely do feel like you've been blacklisted.
WHAT ARE MY OPTIONS IF I'VE BEEN DENIED AN ACCOUNT?
The rest of this blog post will show you how to take the following steps to deal with an account denial:
- Correct errors on your checking/savings account consumer reports, and then ask for reconsideration by the bank or financial institution which denied you, or try at other institutions
- Second-chance accounts
- Prepaid cards
- Secured credit cards
- Complaining to the Consumer Financial Protection Bureau and/or the Federal Trade Commission
- Filing a lawsuit
HOW DO I CORRECT ERRORS ON MY CHECKING/SAVINGS ACCOUNT CONSUMER REPORT?
If you've been turned down for an account, the first step is to find out exactly what is in the specialty consumer report that the financial institution relied upon to reject you. You should do this even if you know you've had some trouble with an account or two in the past. Just giving up in that situation may be tempting but would not productive. Credit reports of all types often have errors, so it makes sense to find out if there is something in yours that's not accurate.
ChexSystems and Early Warning Services fall under the same consumer reporting requirements as the big three consumer reporting agencies. So, you can get a free copy of your checking/savings account report every 12 months. (Their websites and mailing addresses are in the blog post linked to above in the first sentence of today's blog post.)
More to the point if you have been denied an account, you will be given a "notice of adverse action" by the financial institution, including the name and contact information for the consumer reporting agency which provided the adverse information. Within 60 days of receiving that notice, ask the reporting agency for a free copy of your consumer report.
Then carefully review the report to see what information the consumer reporting agency has on file about you. If you find any errors, send a written dispute of those errors. The reporting agency must complete an investigation of your dispute in a reasonable time, usually within 30 days. If that investigation shows that the disputed information is incorrect or outdated, it must be corrected or removed. The reporting agency has to send you the results of the dispute.
If the financial institution which provided the disputed information to the reporting agency reports that the information is accurate as reported, then the reporting agency leaves it as it is. At this point you can contact the originating financial institution itself if you think that you have a good argument that its information is truly inaccurate.
If the adverse information is not corrected or deleted, you can require that the entry include a short statement explaining the situation, if you think that will help. That statement then must be provided to anyone that requests your report.
If either the information is corrected/deleted or you insert a statement, you can require that whoever recently received your report be so notified. At that point you can ask the financial institution where you were denied the account to review your application again to see if you now qualify.
If you are denied again, try at other banks or credit unions, perhaps by applying in person and proactively addressing what they will see in your report. Different institutions have different standards, and some may have more flexibility in overriding their usual standards.
WHAT ARE "SECOND CHANCE" ACCOUNTS?
According to ChexSystems about 15% of applicants for bank accounts are denied regular accounts, some of whom are instead offered other options, including "second chance" checking accounts. Many banks and credit unions offer this alternative type of account, which generally come with higher fees and certain restrictions. That's because of the higher risk for the financial institution that it will suffer losses, and its higher costs for the greater oversight these types of accounts often require.
There is often a mandatory monthly fee for the account, and sometimes other fees. Restrictions may include minimum daily balance requirements, low daily withdrawal limits, and lack of access to overdraft protection (so that checks or other transactions overdrawing the account would simply be denied). You may even be required to take a money management course before being able to open an account.
A few nationwide banks have "second chance" account programs, including Wells Fargo's Opportunity Package, and PNC's
Foundation Checking. Many regional and local banks and credit unions do as well.
Many financial institutions with these accounts will let you upgrade to a regular checking account after successfully maintaining your "second chance" account for a certain length of time. Find out before signing up.
DO PREPAID CARDS MAKE SENSE IF NOTHING ELSE IS WORKING?
Some applicants for bank accounts who are denied both a regular account and a "second chance" account may instead be offered a prepaid card. These are reloadable debit cards that aren't tied to a traditional bank account. But their advantage is that even if you've been flagged as a risk by ChexSystems or Early Warning Services you can almost always open one, unless you have a history of fraud.
It's only a limited solution, and often not a long-term one. The benefit is you avoid carrying around cash, and can access your money at many ATMs and otherwise use the card pretty much like a standard debit card for purchases.
But a prepaid card generally does not help you build your credit, since it is not a debt obligation. And they don't come with most of the protections of regular debit cards in the event of fraud, theft, or error.
They can be quite expensive to use, many with activation fees, monthly charges, ATM fees, reloading fees, and customer service charges, for example. It definitely pays to look around, and then to use your card in a way that reduces the fees as much as possible.
HOW ABOUT SECURED CREDIT CARDS?
A secured card requires an initial cash deposit that becomes the credit line for that account. For example, if you put $300 in the account, you can charge up to $300.
Again, like prepaid cards, they are not related to a checking account. But unlike prepaid cards they do constitute a credit obligation and do generally report to the credit reporting agencies. So a secured credit card can be a sensible way to start rebuilding your credit. But find out before you sign up whether the one you are considering does in fact report to the major national credit reporting agencies.
And because here as well there is a huge variation in fees charged, you need to shop around. Here's a list of dozen or so of them—I don't necessary recommend any particular one, so be sure to review their features and costs before deciding if prepaid cards in general or any particular one of them makes sense to you.
IS THERE ANY PRACTICAL BENEFIT TO COMPLAINING TO THE CONSUMER FINANCIAL PROTECTION BUREAU, OR TO THE FEDERAL TRADE COMMISSSION?
The Consumer Financial Protection Bureau (CFPB) is a relatively new federal agency, created in 2010 as a reaction to the severe economic crisis of the Great Recession. It "consolidates most Federal consumer financial protection authority in one place." In its short history it has already shown itself to be the most aggressive watchdog on behalf of consumers in the world of consumer financial products and services.
The CFPB has what on the face of it seems to be a complaint resolution system worth using. So check it out if you are unable to resolve issues with:
- incorrect information on your credit report;
- how a consumer reporting agency is handling its investigation of your complaint;
- inability to get a copy of a credit score or file; or
- problems with credit monitoring or identity-protection services.
You can file a complaint with the CFPB using any of the following methods:
Each complaint is processed individually and sent to the credit bureau or financial institution for response. The CFPB expects them to respond within 15 days with information about the steps they have taken or plan to take. The credit bureau or financial institution is to review your complaint, communicate with you as needed, and report back about the steps taken or that will be taken on the problem. You'll receive email updates from CFPB and can log in to track the status of your complaint. You'll have the option to dispute the company's response to your complaint.
In contrast the Federal Trade Commission (FTC) seems to have a less directly helpful complaint function. The FTC enforces consumer rights under the federal Fair Credit Reporting Act (FCRA) and the Fair and Accurate Credit Transactions Act (FACTA). But it specifically states that it "cannot resolve individual consumer complaints." Rather complaints made to it "may help us and our law enforcement partners detect patterns of fraud and abuse, which may lead to investigations and eliminate unfair business practices. . . . . The FTC cannot resolve individual complaints, but we can provide information about what next steps to take."
To file a complaint with the FTC, click here or call 877-382-4357 (877-FTC-HELP).
WHEN IS IT WORTH THINKING ABOUT FILING A LAWSUIT?
Simply put, consider suing a consumer reporting agency or a financial institution reporting information to the agency if you have been harmed by their violation of the credit reporting laws and have not been able to get the problem resolved by the other methods discussed above.
You may be entitled to receive your actual or statutory damages, your attorney's fees and costs, and punitive damages to punish the agency or financial institution for its wrongdoing. It is seldom that you would need to actually file a lawsuit; just the serious threat of one from your attorney will often resolve the problem.