About Ken Tumin

Ken Tumin founded the Bank Deals Blog in 2005 and has been passionately covering the best deposit deals ever since. He is frequently referenced by The New York Times, The Wall Street Journal, and other publications as a top expert, but he is first and foremost a fellow deal seeker and member of the wonderful community of savers that frequents DepositAccounts.

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FDIC's Consumer News: Tips for Small Businesses & Consumers Denied Checking Accounts


The FDIC recently published its Winter 2011/2012 Consumer News. Some of this news are just general tips, but some are useful reminders of federal regulations and protections. I've included a few excerpts that I found most useful.

Tips for Small Businesses

This consumer news issue had several tips for small businesses. It's important for small business owners to understand that business bank and credit card accounts have fewer liability protections than consumer accounts. This FDIC article reviews the protections for business credit cards:

Consumer credit cards carry protections for the cardholder under the federal Truth in Lending Act (TILA) that are not required for business cards. Those include new limits on issuer-imposed penalty fees on consumers (including late payment fees and over-the-limit fees) and certain changes in account terms.
Also understand that your liability for unauthorized use by a thief can be greater for business credit cards than for consumer credit cards. Under federal regulations implementing the TILA, there are strict limits on a consumer’s liability for unauthorized transactions: generally, no more than $50. By contrast, if a card issuer provides 10 or more credit cards to a company for employee use, it may require the business to assume unlimited liability for unauthorized transactions. And if fewer than 10 credit cards are issued to the company, the $50 limit will apply for unauthorized use by someone other than an employee. However, if an employee is the culprit, the rules set no restriction on the potential liability for the employee or the corporation.

For bank accounts, there's a risk of a thief stealing money from your account by fraudulent electronic funds transfers. Here's what the FDIC says about this:

Because businesses are generally not covered by federal consumer protections against unauthorized electronic fund transfers, a bank likely will not be responsible for reimbursing losses associated with the theft from the account if it says that negligence on the part of the business, such as falling for a common scam, was a factor.

In addition to fraud protection tips, the FDIC included reminders of recent regulation changes. One was the change in business checking accounts. I had reported on this in July 2011 when the change took effect. The FDIC summarized the change:

Earn interest on checking accounts. As of July 21, 2011, a federal prohibition against the payment of interest on business checking accounts was repealed. As a result, corporations and partnerships can now have interest-bearing checking accounts

There was also a reminder in the article about the temporary unlimited deposit insurance that can be useful for businesses:

it can open a “noninterest-bearing transaction account” (a checking account that cannot pay interest) and have unlimited insurance protection on that account through December 31, 2012.

As I mentioned when I reviewed this law in 2010, the unlimited deposit insurance doesn't affect most of us who want to earn interest on their deposits.

Denied a Checking Account

The vast majority of us are responsible with our bank accounts. We don't write bad checks or overdraw our accounts. Those who aren't responsible have to worry about the bank reporting them to ChexSystems, and once you're on ChexSystems with negative information, it can be difficult to open a new checking account at any bank.

Responsible bank account owners also have to worry about ChexSystems if they often open new accounts. Each time you open an account, the bank's inquiry to ChexSystems will be recorded. If a bank sees too many past inquiries, it may decide to reject your application. Many readers have reported this over the years.

The FDIC article didn't discuss how ChexSystem can hurt responsible bank customers, but it did describe what consumers can do if they feel there is a problem with their ChexSystems record:

What steps can you take to fix an existing problem with your record? First, you can order a free copy of a report on you, if there is one. (To request a copy of a ChexSystems report and learn more from that company, go to www.consumerdebit.com or call 1-800-428-9623.)

“You should review the report and dispute any incorrect information,” advised Luke W. Reynolds, the FDIC’s Chief of Program Development and Outreach.

I'm not sure how common it is for ChexSystems to show excessive inquiries. One possibility is having multiple inquiries for an account application when there should have been only one. For these reasons, it may be wise to regularly review your ChexSystems report even if you have always been responsible with your bank accounts.

  |     |   Comment #1
I did not know that about business accounts, that is why the bank did not put the money back after it was taken by hackers. Luckily, Fed Ex did!
  |     |   Comment #2
The number of accounts opened in a given time period should be considered neutral unless there is some truly negative accompanying info.

Negative activity is specifically delineated as over-drawing, check bouncing & failure to meet financial obligations.

Just opening accounts in good faith, is inherently benign behavior with many valid justifications.

Banks that use the ChexSystems info negatively to deny account opening, are guilty of discrimination.

This is unacceptable, and should not be allowed or tolerated.
  |     |   Comment #3
It is unethical for a bank to decline a deposit account application based on excessive inquiries in Chexsystems and nothing else. The reason why people are denied accounts is because banks look at both Chex AND a credit report and/or score. If you have a poor credit score, you are denied as well as so-called negative inquiries in Chexsystems. As long as someone does not owe a bank, then there should not be an issue to open a checking and savings account. Crazy...

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