Want a partial explanation as to why the numbers of unbanked have exploded in the last 20 years?   Then keep reading. 

There are databases that keep track of people who have bounced a check or committed some other banking “transgression.”  In essence, banks are denying some people access to banking basics such as a checking account.  According to an article on dealbook.nytimes.com these people are being denied banking accounts for as long as seven years.  Is it any wonder that the unbanked population has exploded?

Banks that use these databases include Bank of America, Wells Fargo and CitiBank.  It’s estimated that 40 of the top 50 banks in the US use the service.  The banks say that this data helps them to weed out risky customers and to combat fraud.

These databases were created approximately 20 years ago to help filter out fraud repeaters.  In recent years though, the use of these databases has expanded to its current role of storing the information of people who have bounced a check.

In the banks’ defense, fraud losses on new accounts increased 50% to $9.8 billion in 2012.  This according to Javelin Strategy and Defense.  That’s a whole lot money, that’s for sure.

The Consumer Financial Protection Bureau (CFPB) is looking into the practice as it may violate a portion of the Fair Credit Reporting Act, which requires that consumers must be provided a reason for rejecting their application for a financial product.  Evidence so far suggests that some are providing thorough background to the banks, but this information is not getting to the consumer.  Further investigation by the CFPB may result in new rules for banks and the companies that operate the databases.

It is estimated that almost ten million households do not have a banking relationship (unbanked.)