- A bank may deny you because a checking account reporting company, such as ChexSystems or Early Warning Services, has negative information about your checking history.
- The usual causes are an unpaid negative balance after an involuntary closure, suspected fraud or bad checks, or a joint account with someone who had those problems.
- If a bank denies you based on a report, it must send an adverse action notice naming the reporting company, and you can then request a free copy.
- Under the Fair Credit Reporting Act, most negative information older than seven years cannot be included.
Why banks deny a checking account
The CFPB says a bank or credit union may deny you because a checking account reporting company has negative information in its files about your checking history. Banks and credit unions send that information to companies such as ChexSystems and Early Warning Services, which compile reports that banks use to decide whether to offer you an account and what kind. Retailers may use similar reports to decide whether to accept your checks.
The CFPB lists these common causes:
- An unpaid negative balance, for example from an overdraft, where the bank or credit union closed the account. This is called an involuntary closure.
- Suspected fraud or a history of writing bad checks.
- A joint account with someone who had those problems.
An involuntary closure is when the bank closes your account, rather than you, usually after a negative balance goes unpaid. It is the item that most often shows up on these reports.
Your rights after a denial
| Situation | What happens |
|---|---|
| A bank denies you based on a report | It must send an adverse action notice that names the reporting company and gives its contact information. |
| You want your report | Nationwide reporting companies must give you one free report per year on request. You request each company’s report separately. |
| The report has old information | Under the Fair Credit Reporting Act, most negative information older than seven years cannot be included. Some companies disregard information older than five years. |
| The report has an error | Dispute it in writing with the reporting company. Both the company and the bank or credit union that reported it must investigate and correct inaccurate information. |
The CFPB page does not state a number of days for the notice or the free copy, so check the date on the notice and request your report promptly.
What to do if you are denied
- Get the report. Check it for errors, and also review your traditional credit reports, since some banks use them.
- Ask the bank or credit union what you would need to do to open an account. The CFPB notes some institutions require you to pay old unpaid charges first.
- Consider other institutions. The CFPB says many offer lower-risk accounts and prepaid cards that are designed to prevent overdrafts and overdraft fees and may be easier to qualify for.
- If the report is wrong, send a written dispute to the reporting company and to the bank or credit union that supplied the information. Our guide on disputing credit report errors shows the pattern for the letter.
The CFPB points to lower-risk accounts and prepaid cards as options. People who receive federal benefits on a prepaid card can read our Direct Express card guide. Whichever you choose, check that the bank is covered by deposit insurance; see how FDIC insurance works.
Frequently asked questions
What is ChexSystems?
It is one of the checking account reporting companies. The CFPB says banks and credit unions send information to companies such as ChexSystems and Early Warning Services, and use their reports to decide whether to open an account for you.
How long does negative checking information stay on a report?
Under the Fair Credit Reporting Act most negative information older than seven years cannot be included, and some companies disregard information older than five years.
Can I get a free copy of my checking account report?
Yes. Nationwide reporting companies must give you one free report per year on request, and a bank that denies you based on a report must tell you which company supplied it.
Do I have to pay old fees before I can open a new account?
The CFPB says some banks and credit unions require you to pay old unpaid charges first. Ask the institution what it needs.
Are there accounts for people who were denied?
The CFPB says many institutions offer lower-risk accounts and prepaid cards designed to prevent overdrafts, which may be easier to qualify for.
Sources
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