Denied Checking Account

In the United States, consumers apply for a checking account at a financial institution - most often a bank. The bank confirms the consumer's identify and then runs a credit check specific to checking account history. Just as creditors report credit card and loan performance to credit reporting agencies, banks report checking account performance to a reporting agency called ChexSystems. They may also report the account to a similar company called Early Warning Services.

ChexSystems and Early Warning Services house the information reported by all banks and allows banks to tap into that information for the purposes of deciding whether or not to approve a checking account application.

Only negative information is reported to ChexSystems.

If you are listed in the system, you are probably going to be denied a checking account.

In today's economy, that is an ever increasing problem. Unemployment is at an all time high. Household budgets are stretched to the max and, to make matters worse, fees on credit cards and checking accounts have increased.

In May 2009, USA Today included the following in an article about the timing of increasing checking account fee increases during the recession:

"It's a double whammy," says Michael Moebs, founder of Moebs Services, an economic research firm in Lake Bluff, Ill. "The American consumer as a taxpayer was asked to put up $700 billion (for bank bailouts), and now they're getting another whammy from banks increasing fees."

Many consumers at one time or another have experienced the snowball effect of a single overdraft. It looks like this:

You write a check for $200 and accidentally write it in your checkbook for $20. The balance in your checking account register is now overstated by $180. Right before payday, you are down to what you think is $180 in your account when, in fact, the balance is zero. You make several small charges - let's say five charges averaging $20. Those five charges total $100 and the first one to hit takes your account into a negative balance.

You are hit with the first overdraft fee. The other four charges come through, each resulting in an additional overdraft charge. It is two days before payday and you have no access to funds to cover the overdraft. You might then also be hit with an overdraft charge for each day the account remains overdrawn.

Even if you are fortunate enough to be charged only $25 per overdraft, you have now racked up 7 instances (5 charges and 2 days overdrawn) for a total bill of $175.


© Photographer: | Agency: Dreamstime.comYou are already living paycheck to paycheck because of an impact on your income as a result of the recession. When you are finally paid, you are now down nearly $200 for the month. Some bill now goes unpaid because of the hit to your checking account - a credit card. Now, you are charged with a late fee on that credit card of anywhere from $25-35.

The effect continues to snowball until you can get extra money to recover.

If you don't get the extra money, your checking account might actually spiral out of control and reach such an overdraft amount that you have no way of covering the amount in the short term. Your checking account goes into collections, they contact you for payment and report you to ChexSystems.

You are left trying to cash your paychecks at inconvenient locations and having to make up money orders for your bills. A completely frustrating, humiliating scenario - but all too real for many Americans.

It gets worse as reported by the Richmond Times Dispatch in August of 2009:

"Watch out for two new types of overdraft fees: a tiered overdraft fee, which means that with each successive overdraft, the fees go up. Nine of the 16 largest banks also have sustained overdraft fees, which means that if you don't pay off the overdraft amount and the fee in full, an additional fee gets tacked on (a per-day fee or a flat fee)."

To put it mildly - this is not good news.

So, what does one do when denied a checking account?

Step 1: Don't panic.

Step 2: Open a reloadable credit card.

These cards are deposit account products offered by banks that let you do all the things you used to with a checking account. You can direct deposit your paycheck onto a reloadable credit card account, manage your account online, set up online bill payment, make debit and credit card transactions, and even withdraw money from ATMs.

The only thing you can't do? Write a check - and so what? Will you really miss writing checks? Not me. I hate checks. They're a pain to write, a pain to mail and a pain to track. Maybe it's my adoption of the internet, but I only manage my money online anyway.

And guess what?


NO CREDIT CHECK


NO CHEXSYSTEMS CHECK


NO EARLY WARNING SERVICES CHECK!

Reloadable credit cards are also called prepaid credit or debit cards. They are reloadable, however, meaning you can store cash on the cards over and over just as you did with a checking account.

You use the card just as you would a debit card. Whether it's a PIN transaction at the gas pump or a credit transaction at a nice restaurant, the card accesses the money on your account for each charge. The reloadable credit card has a Visa or MasterCard brand and can be used anywhere the particular brand is accepted.

The RushCard was the first Visa prepaid card on the market.

Believe it or not, it was created by Russell Simmons, the co-founder of Def Jam Records. He knew the importance of being able to manage money online through safe financial institutions and wanted to find a solution for those who had been denied checking account applications.

Over two million people carry the Rush Card today.