Why A Bank Turns You Down

Suspicions confirmed. And yes, sometimes you can justify a little healthy paranoia especially when it comes to big banks and even your local credit union. If you ever had trouble opening an account at a bank or credit union and thought the deck was stacked against you, you might have been right.

Wonder no longer why a bank turns you down.

A new report from the Cities for Financial Empowerment Fund (CFE Fund) and the National Consumer Law Center (NCLC) found that account screening agencies hired by banks use unfair criteria to rate your worthiness for a bank account.

Researchers learned that financial institutions originally hired the screening agencies to pinpoint customers who might commit fraud. But now, with about 80 percent of the banks using the screening services, the agencies check your history of  bounced checks  and overdrafts and make recommendations based perhaps on your mistakes. That’s a far cry from fraud or abuse.

Chi Chi Wu, an attorney with the National Consumer Law Center, said, “To accuse a consumer of committing account abuse by overdrawing her account is bad, given how bank practices have exacerbated overdrafts. But then to shut a consumer out of the banking system for years afterwards is unfair and egregious.”

The report raised concerns about how the agencies approach screening and it suggests:

  • Screening fails to take identity theft into account.
  • The screeners don’t have standard definitions of what constitutes abuse, or guidelines about the size or frequency of overdrafts.
  • Financial institutions don’t make it clear how they use the information they receive from the screeners. 

The Cities For Financial Empowerment Fund and the National Consumer Law Center want the screening agencies to create uniform standards for the way they collect and interpret information.  They also want the screeners to take identity theft and other types of fraud into consideration.

They also call upon regulators like the Consumer Financial Protection Bureau to step in and provide oversight.

Jonathan Mintz, President and CEO of the Cities for Financial Empowerment Fund, says, “…millions of consumers are excluded…not because of a lack of financial education, but because of the little-known and deeply flawed account screening agencies.”

 What do you think? Let us know.



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Barbara Nevins Taylor

As the winner of 22 Emmy Awards and a slew of journalism honors and awards, I created ConsumerMojo.com to give you the straight story about complicated stuff. Tell us what you want to know and we'll get you the answers.