On a daily basis in newsgroups on the Internet and at my website, I hear a common question. It usually goes something along the lines of “Is there any way I can open a bank account? Every time I try to, Chex Systems says no.” I hear many different variations of the same theme, and I began to realize that big brother has now created another group of excluded citizens, those who cannot open bank accounts. This is potentially even more damaging than having a bad credit rating, because the inability to maintain a bank account can make it almost impossible to survive. This will become even more true as the government moves toward requiring all government benefits -- Social Security, welfare, federal retirement, tax refunds, etc. -- to be made via direct electronic deposit into a bank account.

     How did these check approval services become so powerful, and how do they operate?

     Check approval services started to become very popular in the early 1980s. Before this time, it was much easier to write checks in American society. Merchants rarely required a ton of identification, and regular customers could always pay by check with no problem. Even some restaurants accepted checks.

     When checks did bounce, the merchant would contact the customer directly, and the check was almost always made good quickly. Merchants would charge a small fee to cover the returned-check charge levied by their bank. Of course, the number of bounced checks back then was relatively small.

     Then, scamsters started regularly bouncing checks, because it was such an easy crime to get away with. Bank accounts could be easily opened with fake ID, and back then, good fake ID was easy to come by. Remember, these were the days before the magnetic-stripped, ghost-image, computer-scanned identity card. Many state licenses were nothing more than two-piece documents with glued on photos and which were laminated. Some states did not move to photographs on licenses until the middle of 1980s.

     As the number of bounced checks increased, merchants found themselves with greater losses, and much employee time spent calling customers who had passed bad paper. This is when the check approval service began in earnest. What if there was a way for the merchant to avoid losses on any check he accepted at the time of sale? This would eliminate the problem of bounced checks, because the check approval company would make good on any check that bounced. In return, the merchant would pay a small fee for each check he accepted and cleared through the check service database.

     The check approval services created a database that contained the bank account numbers of checking accounts that were closed, or where the checks had been reported stolen. Each time a check was presented, the merchant would call in the checking account number to the service, and the service would approve the check if the number of the account were not in the database. The check approval service also set requirements as to what type of identification the check writer must present, and the merchant would be required to write the ID number and expiration date down on the face of the check.

     Later, this process became computerized, with optical character readers on cash registers reading the bank account and ID numbers directly. Of course, more changes were also happening out of sight of the consumer.

     Instead of the check approval service's database being a strictly negative one, meaning any match of the data in the system was a bad thing for the customer, changes were underway to turn the check approval database into a vast information-gathering tool. As computer power expanded, the information flow into the check approval service could be two-way. The check approval service could now download information about the customer-information such as identification numbers and Social Security numbers. They could also download information on each customer's bank account, and then sell that information to other businesses.

     So check approval service hungrily download your ID number and bank account numbers, and compile dossiers on where and how you shop. It was this new information-gathering ability which interested banks in using them for account approval information.

     Bankers for years fretted over how to reduce their losses stemming from customers who would open up a checking account, and then continuously bounce checks. Especially vexing were those people who would continue to write checks on the account even after it had been closed by the bank. These people would write numerous small checks all over town between the time period when the account was closed and it was later listed on the check approval service bad-account roster. The bank would still incur expenses in bouncing each of the checks, even though the account was closed. The check approval services had a solution.

     Banks should screen each new account applicant through their database. Now the check service databases were steadily compiling a formidable list of people who had had accounts closed, along with their ID numbers. The check approval services also reached an agreement with the banks where they would provide them the Social Security numbers of customers who had accounts closed.

     A second, more subtle change was also made. In the past, a customer could have their negative information removed from the check approval service database if they made good on the bounced check, or paid the bank service charges on a closed, overdrawn account. This is no longer the case. The check approval service will continue to report negative data for five years, even if the arrears amount is paid off. During that time the individual will continue to be blacklisted and unable to open new accounts. In effect, the check approval service has become a credit bureau for those seeking to open checking and savings accounts.

     When a person attempts to open a new checking account, the bank clerk will either call or link online to the check approval service. The customer's name, birth date, and Social Security number is provided. Within a second, the service will either respond with a clear, meaning the account will be accepted, or a negative, at which time the customer will be told the account cannot be opened.

     The bank will be very cavalier in its explanation to the customer. The customer will be told that the bank does know what the check approval company files contain, and that the customer must call the check approval service and find out for themselves.

     Is there anything that the victims of the check approval services can do? The good new is yes, there are some solutions.

       A few banks are now starting to go after this market, a market that check-cashing services have been exploiting to great profit for many years. A typical program is run by a Nevada bank. Customers who have been rejected can qualify by taking a course from the bank on how to manage a checking account, and paying off the amount owed to the former bank. Once this has been done, the customer can open an account.

     A second option is to exploit the weakness in the system itself. If the name and Social Security number are modified enough, then no match will be found with the negative information. This can be coupled with lodging an application via the Internet, which ensures that no ID need be shown.

     The lesson here for all bank account customers, is to be very careful, because big brother can bar you from the banking system very, very, easily, leaving you out in the financial wilderness.

     Trent Sands writes frequently on privacy issues.