Why would a bank refuse to open a bank account?

Question

About 4 years ago, I try to open a bank account for my wife and they refused to open an account after they ran her passport. I asked the manager lady why, but she wouldn't tell me why or she refused to even give me a hint. I try to take peek at her computer screen, but she quickly turned it away from me. My wife moved to the United States back in 2004 and has been living in the USA since then. She is not an US citizen but lives on Green card. I am still confused as to why no one wants to tell me why. She is clean as far as police record goes.

Does anyone have any idea?

Answer 1

There's a report similar to credit report that banks use when they evaluate potential customers. This record holds prior bank accounts and the problems arisen from them. You can order your copy (your wife - hers) here. I believe the rule of a free annual report extends to this as well.

What you describe usually happens if that reports contains some (very) negative information, similarly to negative info on credit record. Usually it means that an account was closed by the bank after overdraft was not repaid or some checks bounced.

Answer 2

I don't know that you can do anything about the event that happened in the past itself, but you can find out now if you/she can get a bank account and if not, why you were denied. To be clear, there are federal consumer protection laws that require "adverse action" to be presented to you in writing, with the details of the consumer agency/report that contained the information they used to deny you, and they generally also must include at least a generic reason.

You are not alone in having this sort of issue, though, as testified by the Times article Why Banks Might Refuse To Take Your Money. Noted in the article was security "flags", like not getting issued a security number until age 30 due to immigration - and this was cited as enough to deny a bank account. You are also entitled to free reports annually, regardless of whether or not you were denied an account, and these are called "speciality consumer reports" (link to government website detailing them and your right to receive a copy.

So banks are generally allowed to turn you down for effectively anything, but they aren't allowed to keep the "why" a complete secret. They don't have to tell you on the spot, but they do have to provide written notice.

As to the "why", it may have been related to how long her social security number has been issued, potential identity theft or error in the report (someone was using her social security without either of you ever knowing, or a company/bank reported the social# with a typo), lack of previous history (never had a bank account that showed up on any reports), etc.

Getting A Bank Account Anyway

I strongly prefer to deal with smaller (local or regional) Credit Unions - I really dislike the consumer practices of most of the larger banking system, and find the services and treatment to be far superior at credit unions. So I'd try to apply there first. If that doesn't work, then get that rejection letter and request your report right away!

If it is an issue with lack of credit/account history, you might consider requesting alternatives - such as being a co-signer/joint-holder of the account with her for 6-12 months, or opening a savings-only account (they even have those for kids!), or look into opening an Online-Only account from various legitimate online banks.

It might take a few tries and some ever-so-fun bureaucratic paperwork, but you should be able to get a bank account you can use, or at least a reason as to what's making it so hard. Money laundering and anti-terrorism legislation might very well have made this process more restrictive or outright ridiculous in some cases, but you can usually still work the system with some time and effort.

There may very well also be less moral reasons involved, such as discrimination which may or may not be legal. But it's impossible to know any of that based upon such a limited-information scenario, so I encourage you to at least get a useful credit report or a proper rejection letter so you have more info to go on.

Answer 3

Financial institutions including banks and investment firms (stockbrokers, mutual funds, etc.) are subject to Patriot Act provisions that impose stiff supervisory requirements for "suspicious activity" and certain customers and transactions. For example, the Office of Foreign Activity Control (OFAC), maintains a list of countries deemed to be prone to money laundering and/or terrorism- i.e. Libia, Yemen, Iraq, Philippines, etc. as an example. These US Government laws impose significant supervisory costs, and some financial institutions impose their own, more stringent rules to avoid running afoul of US law. They'd rather risk losing a customer than dealing with the potential problems from a foreign national. Further, they are not obligated to tell you why they decline to be of service.