I've heard a disturbing story of a young Hispanic consumer who lost her checking account because of something that appeared on her credit report. There was nothing on her ChexSystems report, and she initially was able to open the account, only to see it closed because of a collections account on her TransUnion credit report.
No one in the dinosar media is talking about this yet, but it is huge news. How did banks get away with instituting this practice without anyone realizing it? This is the first I've heard of a credit check precipitating the opening of a bank account.
This is not a credit account, mind you; giving someone a checking account is not the same as extending credit to them. There's already a consumer reporting agency--ChexSystems--that banks can use as an excuse to deny people accounts. So why are they using credit reports?
There are a lot of dimensions to this; the bank who closed this account, when confronted, insisted that all the major banks are doing it now. When a financial institution pulls your credit report, that inquiry affects the consumer's score. [UPDATE--Two of the banks known to engage in this practice, Citibank and Wells Fargo, insist the inquiry is a "soft hit."] The consumer in this case has a very common name, and the collection account was put on the report by a junk debt buyer. (Which means I have NO confidence that the debt legitimately belongs to this particular customer.) In the credit recovery industry, we know how easy it is for collectors to abuse the credit reporting system to extort payments. Remember, one in four credit reports contains serious errors.
And here's another angle to all of this that must be explored: was this consumer's credit checked because she is Hispanic? Would any consumer have suffered through this, or just the ones with ethnic-sounding names? Sure, it seems like it could be the new redlining, but it could also be a coincidence--name confusion is more common with Hispanic consumers, which means they are more frequently punished for credit blemishes that are not legitimately theirs.
I looked around online, and I've seen a few banks disclosing credit checks in various ways. Citibank says they may "verify your identity using comercially-available databases containing information from public records, orther financial institutions and consumer reporting agenceis." They seem to be obscuring the fact that they use the credit report for more than just "verifying your identity."
Bank of America says flat out that they will collect and use information from a consumer report, including credit score and credit history. But their site co-mingles bank accounts and credit cards so thoroughly that it's hard to know what they're referring to specifically; it appears as though it could be that they only use credit reports for their credit card clients, but I've gotten confirmation that BofA does in fact check credit reports for new deposit accounts.
I downloaded a printable Wells Fargo checking account application, and it includes this disclosure "You are authorized to check my credit and employment history and to answer questions about your credit experience with me."
So that's Citibank, Wells Fargo, and BofA that are confirmed as pulling credit reports for new deposit accounts. No confirmation on Washington Mutual yet, though I've been told that they do. I understand that US Bank does NOT pull credit reports when opening new bank accounts.
Since all the big banks are major credit-card issuers, have they just decided to treat every checking account holder like a credit card customer? Or are they singling out certain races for more thorough scrutiny?
What every bank discloses is the Patriot Act connection:
To help the government fight the funding of terrorism and money laundering activities, U.S. Federal law requires financial institutions to obtain, verify, and record information that identifies each person (individuals and businesses) who opens an account.Well, it's a far cry from 'verifying identities' to closing an account because of collection activities on a credit report.
Will the banks get away with this? Credit reports already affect or determine your access to housing, employment, insurance, car ownership, and credit. Will they now determine your ability to have a checking account? This is a very scary development.