When a consumer applies to open a new bank account, the bank employee takes down information about the consumer. 80% of banks send the information a bank account screening agency, usually either Chex Systems or Early Warning Services (owned by Bank of America, Chase, Capital One, and Wells Fargo).
The agencies are databases with information on negative events such as having an account closed due to too many overdrafts or nonsufficient funds transactions (NSF), checks returned by retailers, and fraud. The vast majority of account closures reported to the agencies are due to overdrafts or NSF transactions. Many consumers are shut out of the banking system because they are said to have committed “account abuse” due to overdrafts.
These agencies are credit reporting agencies regulated by the Fair Credit Reporting Act. As such, consumers have a right to obtain a copy of their reports and to dispute errors in their reports. According to a study by the National Consumer Law Center, these agencies fail to conduct reasonable investigations upon receipt of disputes. In practice, the agencies merely defer entirely to the reporting bank’s response to the consumer’s dispute.
There are alternatives for consumers who the banks will not allow to open accounts. Some banks offer “second chance” accounts that require consumers to complete an educational course. Some banks offer a checkless bank account for consumers with negative history so long as no fraud was involved. Checkless bank accounts do not use paper checks and do not allow debit card overdrafts. Banks offering checkless accounts may or may not screen using a screening agency. GoBank does not use screening agencies and is available at WalMart stores. Capitol One Bank will open accounts even if the consumer has a negative history at a screen agency, absent a history of fraud.