Small bank mistakes result in blacklisting more than a million low-income Americans from being able to get a checking account for years.

Over a Million Are Denied Bank Accounts for Past Errors
By JESSICA SILVER-GREENBERG

Mistakes like a bounced check or a small overdraft have effectively blacklisted more than a million low-income Americans from the mainstream financial system for as long as seven years as a result of little-known private databases that are used by the nation’s major banks.

A negative report from ChexSystems (Bank of America, JPMorgan Chase, Citibank and Wells Fargo) or Early Warning (Bank of America, BB&T, Capital One, JPMorgan Chase and Wells Fargo) can stop you from opening a bank account for years.

Most people have no idea that ChexSystems exists or the consequences of bouncing a check. Even if you pay the fees related to the NSF check you may still be denied the ability to open a checking or savings account.

The problem is contributing to the growth of the roughly 10 million households in the United States that lack a banking account, a basic requirement of modern economic life.Unlike traditional credit reporting databases, which provide portraits of outstanding debt and payment histories, these are records of transgressions in banking products. Institutions like Bank of America, Citibank and Wells Fargo say that tapping into the vast repositories of information helps them weed out risky customers and combat fraud — a mounting threat for banks.

But consumer advocates and state authorities say the use of the databases disproportionately affects lower-income Americans, who tend to live paycheck to paycheck, making them more likely to incur negative marks after relatively minor banking missteps like overdrawing accounts, amassing fees or bouncing checks.

When the databases were created more than 20 years ago, they were intended to help banks guard against serial fraud artists, like those accused of writing bogus checks. Since then, though, the databases have ensnared millions of low-income Americans, according to interviews with financial counselors, consumer lawyers and more than two dozen low-income people in California, Illinois, Florida, New York and Washington.

David Korzeniowski, 23, said an employee at a bank in Lansing, Mich., had told him that an overdrawn account reported to ChexSystems very likely scuttled his chances of a checking account until 2016.  Mr. Korzeniowski, who acknowledges “he made a mistake,” says the fees he pays for cashing checks, paying bills and wiring money cannibalize the paycheck he gets from part-time construction work. “Everything is more expensive,” he said.

Jonathan Mintz, the commissioner of the New York City Department of Consumer Affairs, says banks’ growing reliance on customer databases has frustrated efforts to help an estimated 825,000 New Yorkers without bank accounts gain access to the mainstream financial system. “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.

You may think that your credit report is the only hurdle in getting a checking account, a credit card or buying a home.  More than a million people are now finding out that just one bounced check can tank their ability to get a checking account for years.  Banks are closing their branches in poor areas and expanding in wealthier ones.  Why, because they can more more money off affluent customers.

The Consumer Financial Protection Bureau has fielded complaints about the databases and is determining whether they comply with the Fair Credit Reporting Act, a federal law meant to stanch the flow of inaccurate consumer information, according to people familiar with the investigation. Banks are required to provide a reason for rejecting an applicant.