The 'Other' Credit Report: What You Don't Know Can Hurt You

Abstract

Nearly 90% of financial institutions use ChexSystems or similar account screening reports in their account opening process, yet they are under no duty to disclose this to consumers until an account is denied due to information contained in the report. For those consumers denied accounts, it is too late. They had no idea information was being collected on their checking account usage, much less that it could be used to deny them an account in the future, and are subsequently forced to go outside the mainstream and use expensive alternatives like check cashing services and money orders to conduct their everyday financial business. Increased consumer awareness of these reports is necessary so that consumers better understand the impact poor account management may have on their future usage of traditional banking services.

This article examines these reports, the impact on consumers when they can’t open a new account based on information contained in such reports, and how changes in overdraft practices have encouraged poor account management, which in turn may have resulted in even more negative reports. The article also examines how the Fair Credit Reporting Act (“FCRA”) applies to account screening reports and whether new overdraft practices technically result in loans, triggering additional disclosure. The article concludes with recommendations, discussing how the reporting system could be improved and how consumers could be better informed and protected.

Keywords: ChexSystems, FCRA, account denial, account screening reports, unbanked