Special issues arise if you owe money to a bank or other financial institution on a checking or savings account because of a negative balance on that account. We'll explore some of the important issues here.
DEBTS OWED ON YOUR DEPOSIT ACCOUNTS
When you have money in your checking or savings account, the balance on that account is the amount of money the bank or financial institution owes TO you. A checking or savings account is not intended to turn into a debt owed BY you to the financial institution. But that is what it does turn into if it has a negative balance.
That can happen in a savings account through a combination of withdrawals and bank fees. But the problem arises much more often with checking accounts because of the use of checks, debits, and other withdrawals to overdraw the account, plus the various charges imposed for bounced checks, overdrawn accounts, and maintenance and service fees.
If you are financially hurting, your own bank or financial institution could very well be one of your creditors through an overdrawn account.
CONSUMER REPORTING AGENCIES FOCUSING ON YOUR BANK ACCOUNT
You're familiar with the usual national consumer reporting agencies which provide consumer credit reports—Equifax, Experian, and TransUnion. But there are other consumer reporting agencies which focus on your history of using a particular product or service or within a particular industry. For example, some of these specialty consumer reporting agencies focus on apartment rental payment history, vehicle insurance claims, and utility and phone bill payment history.
One particular kind of specialty consumer reporting agency focuses on collecting data on checking account openings and closures, and adverse account events like bounced checks and accounts closed with a balance owing. These agencies provide information to banks, credit unions, and other financial institutions to refer to before they open a new account for a customer.
WHICH COMPANIES SPECIALIZE IN REPORTING CHECKING ACCOUNT INFORMATION?
Just as there are three large national agencies which provide general consumer credit information, there are two large national ones which provide a large portion of the checking account-related information: ChexSystems and Early Warning Services.
Chex Systems, Inc. was founded in 1971. According to the Company Overview in Bloomberg Businessweek, it provides "account verification services to its financial institution members to aid them in identifying account applicants who may have a history of account mishandling." It is a wholly owned subsidiary of
FIS, which calls itself "the world's largest global provider dedicated to banking and payments technologies." In 2013 it was ranked as #1 out of the top 100 "global technology providers to the financial services industry" in
the FinTech 100.
Early Warning Services, LLC was incorporated in 1995. According to the Company Overview in Bloomberg Businessweek, it "collects, verifies, and analyzes consumer data and financial information to detect and prevent fraud and identity theft . . . . It serves financial services organizations, such as banks, credit unions, and card issuers; and check acceptance companies and payment processors." It is owned by Bank of America, BB&T Corporation, JPMorgan Chase, Wachovia, and Wells Fargo.
We are clearly dealing with two very powerful information reporting institutions.
WHAT KINDS OF INFORMATION DO THEY REPORT?
Banks and other financial and retail members send in reports on certain checking and savings account activity that are compiled by ChexSystems and Early Warning Systems and are then made available to other members.
The account activity tracked and reported includes checks written without sufficient funds in the account, bank/financial accounts closed with negative balances, and transactions considered potentially fraudulent. Check payees may also report any bounced checks returned unpaid by the bank.
ChexSystems states on its sample consumer report that "Reported Information refers to reports of accounts that have been mishandled, reported for cause, and/or outstanding debts." See that
sample report for examples of these kinds of reported information.
HOW LONG DOES THIS INFORMATION STAY ON THESE SPECIAL REPORTS?
ChexSystems and Early Warning Systems are "consumer reporting agencies" just like Equifax/Experion/TransUnion, even if they provide more specialized information. As such they are subject to the federal Fair Credit Reporting Act, which provides that "an adverse item of information," including about checking and savings accounts, can be reported for up to seven years.
However, ChexSystems states on its sample consumer report that "[o]ur current practice is to retain this information for a period of five years."
WHAT HAPPENS IF YOU HAVE ADVERSE BANK ACCOUNT INFORMATION ON YOUR REPORT?
You can get turned down when you try to open a checking or savings account at a financial institution.
If you are turned down, just as with the usual credit reporting agencies you are entitled to be told the name and contact information of the account reporting agency whose report was used to turn you down. You are entitled to receive a copy of that report, and to dispute the information on it. You can also receive a free report every 12 months from each company regardless whether you are denied an account.
Here is the contact information for the two companies:
Attn: Consumer Relations
7805 Hudson Road, Suite 100
Woodbury, MA 55125
Early Warning Services
16552 North 90th Street, Suite 100
Scottsdale, AZ 85260
WILL BANKRUPTCY WRITE OFF THESE BANK ACCOUNT DEBTS?
Yes, bankruptcy will generally discharge—legally write off—debts owing on your checking and savings accounts.
On rare exceptions a financial institution may object to such a discharge of the debt, based on allegations that the debt was accrued through your fraud or misrepresentation. Your attorney will discuss this with you if it is a concern.
WHAT IS A BANKRUPTCY FILING'S EFFECT ON YOUR BANK ACCOUNT RECORD?
People are often sensibly concerned about a bankruptcy filing's effect on their overall credit record. But often that concern is misplaced. Because in most situations filing bankruptcy improves a person's credit standing over what it would have been had that person continued to struggle without filing bankruptcy.
The situation is similar with consumer bank account reports.
Filing bankruptcy can stop the bleeding. If you are already in a viscous cycle of bounced checks and overdraft charges, then filing bankruptcy will get you out of that cycle by getting rid of debts that you can't handle so that you can deal responsibly with your checking and savings accounts going forward.
And filing bankruptcy can prevent that bleeding from happening if you are right on the brink of it happening.
In both cases, bankruptcy will stop new adverse checking and savings account events from hitting ChexSystems and/or Early Warning Services, making less likely that your account(s) will be closed for such behavior.