The banking system has blacklisted over a million Americans for mistakes such as bouncing checks or overdrafting their accounts, The New York Times reported.

About 10 million American households lack a bank account. Though some choose to avoid the financial system, many others are denied the opportunity, according to The Times.

When a person tries to open an account, many banks and credit unions tap into private databases to do a background check. These databases are not maintained by the well-known credit reporting agencies, but rather by companies most Americans never heard of, such as ChexSystems and Early Warning.

Forbes Columnist: ‘Who the Hell Cleared This?’

The databases have existed for decades and were designed to guard banks from risky customers, The Times noted. Originally, risky customers were basically fraudsters. But that definition has now been reshaped to describe low-income Americans who make banking errors, such as bouncing checks.

"Hundreds of thousands of Americans are being shut out [of the banking system] for relatively small mistakes," Jonathan Mintz, commissioner of the New York City Department of Consumer Affairs told The Times.

These individuals, known as the unbanked, are forced to use alternatives such as check cashing and money wiring services to conduct their financial transactions. This results in significantly higher costs.

According the Saint Louis Fed in 2010, unbanked Americans who receive government assistance spent about 2.5 to 3 percent of the benefits just cashing the check. For workers, the costs were about 4 to 5 percent.

A household with a net income of $20,000 paid up to $1,200 per year to cash a bi-weekly payroll check and buy about six money orders per month, according to the Saint Louis Fed's website.

Getting flagged in one of the databases can mean getting blacklisted from the banking system for up to seven years.

"It makes sense to warn other institutions of people who have caused a loss in the past because they are more likely to cause a loss than someone who hasn't done so," Nessa Feddis, senior counsel at the American Bankers Association, told CNNMoney.

But critics say the punishments are too harsh for minor banking indiscretions. Consumer advocates and federal regulators also say it can be difficult to find out why you are being flagged and to remove any inaccurate information.

Banks claim they are not using the databases as strictly as critics suggest to penalize minor mistakes.

"We have had too many experiences where even banks that have offered to be flexible with us find their own internal risk management systems mean that their hands are tied," Mintz said.

Forbes Columnist: ‘Who the Hell Cleared This?’