Predatory lending exists in the mortgage industry. It's typically when a mortgage broker add's on unnecessary fee's to a bad credit application, because he or she knows that the applicant is in a desperate situation.
Predatory banking can also exist for those who have ended up in the ChexSystems.
ChexSystems is a network of financial institutions (mainly banks) that regularly contribute information about account holders that mishandle their checking or savings accounts. Nearly all banks within the US are a part of this consortium.
Bounce a check, and not pay it off in a timely manner, and you could end up in the ChexSystems. Even if you receive a bogus check, and the bank suspects foul play, you could land in the ChexSystems hot seat.
And the sentence for this financial felony isn't light.
If the bank that put you in the ChexSystems refuses to release your name from the ChexSystems database, you'll find it close to impossible to obtain a bank account of any sort for 5 years.
Even if you pay off the offending debt, the bank could still hold you a ChexSystems prisoner. Wicked, but 100% true.
So naturally when you have a situation where people are stuck between a rock and a hard place, the vultures come out to feed. This is what you may encounter if you're looking for a non ChexSystems bank account.
Before you pay money to any service that claims to give you a non ChexSystems bank account be sure it passes the following tests with flying colors.
- Make sure the bank is FDIC insured. According to the FDIC web site:
"The FDIC – short for the Federal Deposit Insurance Corporation – is an independent agency of the United States government. The FDIC protects you against the loss of your deposits if an FDIC – insured bank or savings association fails. FDIC insurance is backed by the full faith and credit of the United States government. "
In a nutshell, if you decide to open a bank account with an institution that isn't FDIC insured, you could basically lose all of your money if that institution goes out of business. So it's extremely important to verify the banks status before you open an account. You can easily verify that a bank is FDIC insured at the FDIC web site.
- If it's a credit union, make sure it's NCUSIF insured. NCUSIF insurance is similar to FDIC insurance, except it's for credit unions. According to the National Credit Union Association web site:
"The shares in your credit union are insured by the National Credit Union Share Insurance Fund (NCUSIF), an arm of NCUA. Established by Congress in 1970 to insure member share accounts at federally insured credit unions, the NCUSIF is managed by NCUA under the direction of the three-person NCUA Board. Your share insurance is similar to the deposit insurance protection offered by the Federal Deposit Insurance Corporation (FDIC). "
All credit unions that are NCUSIF insured can be found at ([http://www.ncua.gov/indexdata.html]).
- Make sure the institution has a physical branch. This is one of the easiest ways to weed out the bad seeds. Banks with physical branches are always legitimate financial institutions.
- Do some background work on the bank. Do a WHOIS search to view the registrant for the banks domain name. If it's a single person, that should raise a red flag. It should always be the banks name or corporate name. Look on the banks web site. There should be separate telephone and fax numbers, and a legitimate street address – not a PO box. You can always call 411 to confirm that the telephone number matches the address listed. But also keep in mind that some banks have a central location where they answer general calls.
- Make sure the bank DOESN'T require you to use direct deposit in order to open the account. There are some financial services that offer checkless checking accounts. (This isn't a scam as far as I can tell.) But what if you don't get direct deposit? Or what happens if you switch jobs, and no longer receive your checks through direct deposit? Then you're basically back at square one. And what if you want to use checks? I mean a checkless checking account kind of defeats the purpose of obtaining a checking account at all.
- Make sure the institution doesn't charge you for common items like monthly statements, telephone services, and withdrawls. I recently noticed a financial service charging outrageous fee's for options that are normally provided for free through regular banks and credit unions. They were charging for everything but the kitchen sink, including: a fee to check your balance at the ATM, a fee to receive a monthly statement, a fee if you wanted to return something you purchased from a retail store, a fee for using their automated telephone service. And that was just the tip of the iceberg!
Even though you're in the ChexSystems doesn't mean you should play victim to financially draining ploys like these. There are always better alternatives waiting in the wings.