Credit check for depositors?

August 12, 2009 9:17 PM

I'm a depositor, and only a depositor, at a bank. What legitimate purpose is there for the bank to run a credit check on me?

I'm an established customer at a bank I'm happy with, but now on a form used in processing a name change they are requiring that I give them permission to run credit checks, employment verification, etc.

They are not and never have been a creditor to me. I have never had or sought any type of loan from them, including credit cards. In fact, it's the opposite, since I am a depositor.

I give money to them, not the other way around. So how could it be appropriate for them to run credit checks on me?

posted by NortonDC to work & money (27 comments total)

Overdrafts?
posted by Admiral Haddock at 9:19 PM on August 12

There are separate authorization forms for optional overdraft protection, which I do not have and have never requested.
posted by NortonDC at 9:22 PM on August 12

There are scams in which the perpetrator sends the victim a bogus check, asks them to deposit it and send a portion of the money back. Maybe they're trying to guard against this, although I'd guess a credit check could only uncover a willing participant. From what I read, most of the people who become victims to this are elderly and they likely have excellent credit.

Personally, I'd resent the intrusion and try to find another bank, but it's possible they all do this now.
posted by tomwheeler at 9:25 PM on August 12

Appropriate? Who say it has to be? The bank makes their own rules, not you, not me, not any appropriateness fairy.

Maybe they just see a chance to run a check so they can then target you for credit card offers and other "deals?"

Tell them to fuck off, and take your business elsewhere. Loosing your business is what they deserve for such an inappropriate invasion of your privacy.
posted by wfrgms at 9:25 PM on August 12 [3 favorites]

They probably use credit agencies to run the checks required to comply with the enhanced Know Your Customer regulations established by the USA PATRIOT Act in the wake of the September 11 terrorist attack.
posted by RichardP at 9:29 PM on August 12

wfrgms has it. They run a credit check on you (not the kind that dings your credit) so they can know which of their products to promote.
posted by infinitewindow at 9:32 PM on August 12

I think wfrgms is probably right that it's a setup for them to pitch offers to you, "their valued customer" which will probably be followed by selling your personal data to "partners whose services they think you'll enjoy."

I retract my previous suggestion and recommend you ask them why they need a credit check. This will satisfy for curiosity, and if they don't offer a compelling reason, would also put you in a good position to rebuke them as wfrgms suggested.
posted by tomwheeler at 9:35 PM on August 12

I can almost say with 100% assurance that it is so they can run you against CheckStsr, which will alert them if you owe any banks money, since quite a few banks now do the "you scratch my back, I scratch yours" and only offer accounts, or continue to offer an account, I'm your case, if you are square with banks across the board.
posted by banannafish at 9:35 PM on August 12 [1 favorite]

I believe, in pragmatic terms, that wfrgms has it. You're just a customer, why should their enquiries be appropriate to your interests, and not theirs? You probably don't get enough mail.

That said, having worked in finance for too long, it also seems possible they are attempting to keep their compliance mob happy. By which I mean: sometimes, people make deposits through banks simply to launder money. Those people are far more likely to change the name on the account than the average gumby.

Mostly, I think it's probably part of a stupid, invasive marketing exercise that you'd do well to avoid, but it's also possible that you've just got caught in a deliberately-over-broad AML (anti-money-laundering) program.
posted by pompomtom at 9:47 PM on August 12

Simply politely refuse to give them the information or the authority and ask if you need to take your account elsewhere. I do think that this has more to do with Anti-Money Laundering (AML) and Patriot Act (PA) regulations than bank marketing. Find out if you will have to provide the same information at a new bank before you give up on the current one. Of it is for marketing purposes, they will likely let you slide on not providing the info. If it is for AML or PA, you will need to do it at every bank.
posted by JohnnyGunn at 10:09 PM on August 12 [1 favorite]

What legitimate purpose is there for the bank to run a credit check on me?

I can think of a couple.

1) Know your customer.
2) You're a credit risk. The bank is giving you the privilege of writing IOUs to people, and has no idea if you have cash in the account at the time the check is written/cashed. Most banks these days float you the money, and charge you a bounced check and/or OD/NSF fee. You mentioned that you'd opt out of the overdraft protection. But the bank still needs to know that you won't write bounced checks or have a terrible history of not paying your bills. Banks make money on service charges (40% of a regular bank's revenue is typically non-interest). They need to know if you're worth the risk.

People above are correct that the bank wants to sell you other products. And why shouldn't they? Banks are paying you interest on your checking account (in some cases) for the opportunity to sell you other products and services. They're also giving you the opportunity to use hundreds/thousands of their ATMs (which cost money to service) and not charging you for any teller transactions (also cost money).

You have every opportunity to opt out and goto a bank that doesn't check your credit. And more power to you. But there are good reasons for it (legitimate, not just to sell you more stuff).
posted by SeizeTheDay at 4:26 AM on August 13

Perhaps depending on your credit rating, your funds are made available to you faster when you deposit them or the amount raised that you can deposit each day. Something changed for me where I can deposit more money that is available to me faster.
posted by bigmusic at 5:10 AM on August 13

Find out if you will have to provide the same information at a new bank before you give up on the current one.

And get this information from a different bank, not the one you have. If there's any uncertainty at all, I'm sure they'll err on the side of "everyone does this now."
posted by scrutiny at 5:15 AM on August 13

SeizeTheDay, your #2 requires that I receive overdraft protection for it to be valid. I do not, so it is not. You seem to acknowledge this, so your assertion confuses me. There's no way for me to obligate the bank to pay money that it does not already have from me.
posted by NortonDC at 5:22 AM on August 13

First of all, banks have standard account opening procedures and won't change them just because you want to opt out of OD protection. You opt out after the account is open; opening an account isn't a negotiation. Second, you're still a credit risk, because if you cash a check that doesn't clear, the bank has to collect the money from you. If they don't know your credit history, they can't be certain that you'll give them back THEIR money. Third, again, te bank needs to be certain that it can collect service charges from you, which include monthly service fees, bounced check fees, etc.
posted by SeizeTheDay at 5:52 AM on August 13

No, overdraft protection is opt-in at this bank, and I declined to opt-in. I never had it, and opting in is a separate process with its own paperwork.

So is it really your assertion that because I might potentially deposit or cash someone else's check, the bank ought to run credit checks on me? You think that justifies running credit reports and employment verifications on me and my spouse?
posted by NortonDC at 6:37 AM on August 13

And I don't even see how what they learn could change the outcome, no matter how positive or negative the information they receive, since this is about existing accounts, established years ago.
posted by NortonDC at 6:37 AM on August 13

You're misunderstanding what I mean by opt-in and opt-out. The credit check is part of the account opening procedure. Whether you decide to opt-in or out of OD is secondary to the account opening, and banks don't change their account openng procedures just because you refuse OD protection. They're unrelated.

Second, if you receive a check from some dude on eBay, you cash it, and the check bounces, you owe the bank that money you received from the bad check. The bank needs to know that you're creditworthy enough that you'll pay that money back. Not to mention that you'll pay any other service fees that accrue to your account. Banks are not like retail; it's an ongoing relationship, and they need to know that you're worth the risk: just like a cell phone company or landlord - it's a relationship.

And knowing first hand how much money the bank I work for charges off as uncollectible from deadbeats, yeah, I think it's justified. We lose millions every month from charged-off service and NSF fees.
posted by SeizeTheDay at 6:52 AM on August 13 [1 favorite]

1) I'm not opening an account, so that's irrelevant.

2) Oh, you're a banker.
posted by NortonDC at 6:59 AM on August 13

New account or not, my comments still apply. It's a relationship. Being a banker gives me a unique insight, and instead of appreciating it, you'd rather stereotype me, then I'm sorry. I always thought that AskMeFi was a gathering place for unique insight.
posted by SeizeTheDay at 7:04 AM on August 13 [2 favorites]

No, overdraft protection is opt-in at this bank, and I declined to opt-in.

The use of "overdraft protection" as a singular rather than plural term makes me wonder if you may not be aware of some of the different ways a bank can react to an overdrawn account, e.g.:

1. Bounce the check, charge you a fee, let you get into trouble with a merchant.

2. Honor the check, charge you a fee on top of it, charge you additional interest if you don't get your account balance into positive numbers soon.

3. Honor the check, automatically withdrawing money from a linked savings account or a cash advance from a linked credit account.

(2) and (3) are both "overdraft protection" in some sense, and a credit check makes sense for both policies, but they aren't the same. At my bank, for instance, (2) was automatic (yes, I accidentally bounced a check 10 years ago...) but (3) was opt-in. On a new account it's possible that, even if you haven't opted in to a good overdraft protection policy like (3), your bank may still want to figure out whether they're better off bouncing or honoring any bad checks you may write.

But that's a digression; they're not going to do any of this on a years-established account. They're probably preparing to try to sell you something.
posted by roystgnr at 7:42 AM on August 13

Another banking aspect is check holding. If your bank holds all of your deposits for three to five days, waiting for them to clear, you will be inconvenienced. If, on the other hand, they give you immediate use of your deposited funds, this is very convenient for you, but a risk for them. The credit check can be part of the hold/no hold decision for your account.
posted by Midnight Skulker at 8:04 AM on August 13

roystgnr, that's an interesting idea, but (2) and (3) are offered individually at the bank, and each variety of opt-in is an extra service that has to be applied for with its own variety of separate paperwork.

So there really isn't any overdraft protection of any type on my accounts.


Midnight Skulker, fund availability delays at this bank vary from nothing for direct deposits to something like a week and half for out of state personal checks. This makes me doubt that I'm getting "credit" to eliminate the window of unavailability, because that window is wide open at times.
posted by NortonDC at 8:18 AM on August 13

I spoke with a bank rep and she agreed that it was inappropriate and invited me to cross out that portion, initial the change and sign the modified document. This will allow my patient but slightly exasperated wife to change her name at the bank without us authorizing credit checks, employment verifications or other nonsense.

I'm glad they came through, because they've been reasonable in the past and I look forward to banking with them in the future.
posted by NortonDC at 8:30 AM on August 13

Your initial post is a little vague on specifics regarding exactly what they are requesting. They may be simply carrying out identity checks. I'm willing to bet that they are required because of know your customer requirement pursuant to money laundering regulations. Banks are required to carry out certain identification checks to ensure that you are who you say you are to cut down on the risk of money laundering.

If your changing the name, there is a risk that you are actually trying to turn a previously "honest" account into one that can be used for money laundering. Hence why the standard form has these extra checks included.

Now if the bank has agreed to waive those checks on this occaision then that's all well and good, but I can certainly understand why they are requesting these sort of things.
posted by Mattat at 9:02 AM on August 13

Second, if you receive a check from some dude on eBay, you cash it, and the check bounces,
Nonsense. What bank would cash a check for more money than my deposits can cover? No bank I'm familiar with (and if they would, they aren't sufficiently responsible to handle my money!). Given that, who besides me, takes the risk for the possibly bad check?
posted by TruncatedTiller at 9:43 AM on August 13

If you deposit a check, your endorsement on the back is effectively a promise from you to the bank that you will repay them if the check bounces. Hence, they are effectively extending you credit until the check clears.

That's why you can only cash checks, for the most part, at your own bank or that of the check's issuer.
posted by mikewas at 9:56 AM on August 13