We got a great question from a blog reader called "Rainman" yesterday:

I have noticed that a lot of banks now do hard inquiries against your credit report just to open a checking or savings account, while other institutions are satisfied with a soft inquiry. Given that soft inquiries get an institution the information they need, why must some institutions damage your credit report with a hard inquiry? Is there anyone trying to pass any legislation to prevent this in future? It seems unfair that your credit score declines when you are lending a bank your money

Under the requirements of the Patriot Act, all banks must do an identity check on a new customer. They use "customer identification programs" (CIP) that compare your name, address, date of birth, and other facts to the information contained on your credit report. This identity verification process does not count as a hard inquiry and probably isn&39;t even recorded as a soft inquiry either. Your credit score would not be damaged by that step.

The CIP regulations require institutions to implement reasonable procedures for:

• Verifying the identity of any person seeking to open an account, to the extent reasonable and practicable
• Maintaining records of the information used to verify the person&39;s identity, including name, address, and other identifying information
• Determining whether the person appears on any lists of known or suspected terrorists or terrorist organizations provided to the financial institution by any government agency

Banks also review ChexSystems and sometimes credit report data during the process of determining if a customer qualifies to open a new account. This is a separate step from the identity verification and could be recorded as a hard inquiry. Under FCRA regulations, the bank has to have a permissible purpose such as "intend[ing] to use the information in connection with a credit transaction involving the consumer" in order to pull a credit report and must obtain the consumer&39;s consent first.  A hard inquiry like this could cause a small credit score ding.

Now we know that banks can check credit reports, but do they really? To determine each bank&39;s policies I called customer service at the top ten financial institutions in the US.  I did the leg work so you wouldn&39;t have to, and trust me when I say it was pretty terrible! It took me about an hour to call these ten banks. I&39;m not convinced that the representatives knew what they were talking about, but here are their answers:

• Bank of America - ChexSystems review only.
• Citibank - They do check credit reports but it is recorded as a soft inquiry.
• Chase - ChexSystems review only.
• Wachovia - They do check credit reports and it is recorded as a hard inquiry.
• Wells Fargo - They do check credit reports and it is record as a hard inquiry (although the representative told me at one point that "there is no difference" between a hard and soft inquiry).
• Washington Mutual - ChexSystems review only for branch and online applications. No record review for phone applications.
• HSBC - ChexSystems review only.
• SunTrust - ChexSystems records and Beacon Scores are used for review. Does count as a hard inquiry.
• US Bank - ChexSystems review only.
• Citizens Bank - ChexSystems review only.

In conclusion, this seems to largely be an urban legend. Only a few bank representatives said that they checked credit reports and that it would count as a hard inquiry. If you are concerned about having your credit report reviewed when you open a checking or savings account, I recommend calling the bank first to ask about their policies. It seems like it will be a non-issue in most cases.

As for organizations fighting against banking credit checks, PrivacyRights.org and the ACLU are active in protecting consumers&39; rights. You can also find more information with the National Consumers League, ConsumerAffairs.com and ConsumerAction.org.

Have you received a hard inquiry from applying for a checking or savings account? Report your case in the comments section below!