Will no one stop the banking industry from ruining customers who make small mistakes with their checking accounts?
For a $2 error, you can be put on a banking blacklist. Once that happens, you usually won't be able to get a new checking account for the next five years! That doesn't happen to the rich who bring big deposits to the bank. It's only the little guy the average American who gets slammed.
Fixing the error doesn't help. The blacklist has made no distinction between a small mistake which the banks call "account abuse" and deliberate fraud.
The Minneapolis-based blacklist, called ChexSystems, is owned by eFunds, a unit of the check-printing company, Deluxe Corp.
As many as 90 percent of the bank branches in the United States consult ChexSystems, whose database contains more than 7 million names.
Credit unions use it, too.
Banks report you to ChexSystems if they close your account for cause say, because you bounce checks or overdraw your account and don't repay instantly. If you have two banks, the second one might throw you out merely because the first one did.
You're also reported if you close an account and mistakenly leave a small debt behind.
Here's a story involving someone in my family, whom I'd rather not identify. Call him Sam.
For two years, Sam kept an account at a bank in Northern California. On a Saturday in 1997, two days before moving to San Francisco, he withdrew $60 at an ATM. On the following Monday, he closed his account and took the cash the bank showed he had.
As you've probably guessed, he hadn't subtracted the $60 from his check register. And it hadn't occurred to him that the bank would not yet have checked the ATM. In short, he left town with $60 too much.
Two months later, at his new address, he tried to open a bank account. No dice. His Northern California bank had reported him to ChexSystems.
When he learned of the error, he drove 600 miles to his old bank and repaid the $60. But the bank refused to delete his name from the blacklist. Nor did it bother reporting that the $60 was paid.
Since then, no California bank or credit union has accepted him as an account-holder. His girlfriend has been cashing his paychecks and paying his bills.
You can fault Sam for not keeping a perfect check register. But then, do you? If you don't, should you land on a five-year blacklist?
My associate, Dori Perrucci, spoke last month with another victim of a small mistake. He's afraid of going public, so call him Bill.
When Bill moved to California from the Midwest to accept a new job, he, too, couldn't get a bank account. When he'd closed his previous account, he'd forgotten a $40 automatic deduction for his life-insurance premium. He paid, but the Midwestern bank reported him to ChexSystems anyway.
Bill was lucky. He got a local credit-union account.
Both Sam and Bill were reported as NSF meaning "non-sufficient funds" in their accounts to pay a bill.
But most ChexSystems reports don't show how much money was owed. It could be $4 or $40,000. Nor does it routinely show whether the overdraft was repaid.
An ex-employee of ChexSystems (anonymous again) told me she saw NSF accounts where just $1.97 was due.
That might happen if you closed your account and then got a mindless bill from the bank for your next month's fee. You'd probably shrug it off and bingo, you could be listed as an "account abuser."
"I've had people crying on the phone, saying they don't know how to manage without a bank account," the ex-employee said.
What's more, most banks don't even bother to ask what ChexSystems' record shows. If you're listed, for any reason, you're dead.
How can banks be allowed to get away with that? It's one thing to exchange information about fraudsters who use 12 Social Security numbers. But it's a sin to punish small mistakes, by little guys, so brutally. (But then, they may not want little-guy accounts.)
Some California banks announced more lenient treatment for small overdrafts and a shorter blacklist period after a Wall Street Journal story exposed these practices last year.
ChexSystems also has announced new voluntary guidelines, says spokesperson Lisa Nelson. Banks are now supposed to disclose the amount of an NSF and report "as soon as possible" if it's repaid. But they don't have to, and nothing bad happens if they don't.
If you have a problem, you can get a copy of your ChexSystems report through www.chexhelp.com or call (800) 428-9623. You might find some useful information at a consumer site, chexsystemsbites.tripod.com.