What’s keeping millions of Americans from opening bank accounts?

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By Maureen Mahoney on Thursday, October 29th, 2015

Almost 17 million Americans don’t have access to a bank account – which can cost them an estimated $40,000 over the course of their lifetimes in high fees for alternative financial products. What’s preventing so many Americans from obtaining checking or savings accounts?

A new report by the National Consumer Law Center (NCLC) and Cities for Financial Empowerment Fund (CFE Fund) is taking a close look at some of the potential causes – specifically, the credit bureaus that over 80% of banks use when deciding whether to open consumer accounts. Two of the most prominent of these credit bureaus are ChexSystems and Early Warning Services.

These credit bureaus collect information about consumers’ banking histories, including negative information such as overdraft history and any incidents of fraud. According to the FDIC, 25% of banks will automatically reject a candidate with negative information on his or her account report.

NCLC and the CFE Fund have several criticisms about these tools and the ways they are used:

  • Potential for error. The authors argue that these bureaus may have inaccurate information on file, and that it’s difficult for consumers to access and correct their files. It argue that consumers don’t have enough information about these report, and when and how they are used.
  • Lack of standardization. They point out that credit bureaus use different definitions for terms like “fraud.” Not only can this be confusing for consumers, but it means that they may be held to different standards, depending on the credit bureau, bank, and even bank branch.
  • Overly harsh consequences for negative information. Finally, they write that banks may reject applicants with negative information on their reports out of hand, without evaluating the broader circumstances involved.

To address these problems, in addition to regulatory reforms, NCLC and the CFE Fund advise that:

  • Credit bureaus do a better job of making reports easily available to consumers online, and upgrade their error investigation and correction procedures;
  • Credit bureaus and banks standardize their reporting procedures and they definitions used;
  • Banks respond proportionately to negative information on a report, for example by only rejecting consumers that have committed actual fraud, or allowing those with negative information to open a “second chance” account to establish a positive bank account history.

If you’ve been having trouble opening a bank account, we encourage you to use the Consumer Financial Protection Bureau (CFPB) as a resource for help and information. Click here for a list of specialty credit bureaus, including those that collect banking histories. The document also offers advice on accessing your report from these agencies.

And, if you have a complaint about a bank or financial service, take it to the CFPB! They don’t just take your complaint, but actively work on your behalf to get an answer from the companies involved.

Have you had difficulties opening a bank account? Please take a moment to share your story with us!

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