What Exactly is ChexSystems?
Many people fail to pay back their overdraft on time. ChexSystems is a consumer credit reporting agency used by banks and credit unions to find out the financial history of people applying for checking and savings accounts. It is governed by the federal Fair Credit Reporting Act (FCRA) and other laws. Roughly 80 percent of the banks and credit unions in America use the ChexSystems services and provide them with information on their customers who default on overdrafts and other payments.
When someone goes to a bank or credit union and fills in an application for a checking account, the bank will request a t on the individual. If there is a report available, it usually means you have had an account closed for one reason or another in the past. The bank will then base a decision on whether to allow you to open an account or not. ChexSystems do not make this recommendation for the bank; they are rather more like the messenger who bears good or bad news. Banks have different policies on how they deal with ChexSystems. A ChexSystems report may contain:
- Details on failure to settle debts
- Unpaid overdraft fees
- Depositing counterfeit bills or forged checks
- Writing bouncing checks
Once your bank reports you to ChexSystems your name stays on their files for a period of up to 5 years. In this time it may prove very difficult indeed to open a new checking or savings account. Making sure you service your account and keep up to date with any overdraft payments is very important as it is not an easy exercise to have your name removed from the ChexSystems.
Did You Know?
This is a fact-by-fact list of what ChexSystems is, why they were created and what it means to you to be on ChexSystems.
- ChexSystems is a credit reporting agency that is used by banks and other financial institutions to help measure the amount of risk that a new customer poses to their business.
- If, for whatever reason, your name has been reported to ChexSystems as a risk you will have a difficult, if not impossible, time opening any type of banking account.
- If you are reported to ChexSystems you will stay on their database a minimum of 5 years.
- Practically every single one of the financial institutions in the United States use ChexSystems to check out potential customers before allowing them to have any type of account.
- ChexSystems does not profit in any way by reporting your negative information. Negative or positive it doesn’t affect them either way.
- ChexSystems cannot be used to open, close or otherwise perform any banking actions. They are simple a credit reporting agency like Equifax, Experian and TransUnion.
- If you have filed BANKRUPTCY you will need copies of the discharge documents from the bankruptcy court.
- If identity thef is the reason you are on ChexSystems you will need to give ChexSystems a certified copy of either your police report or an affidavit of fraud.
How Was ChexSystems Started and Why
Back in the late 70’s a retail grocery store owner who was fed up with getting bounced checks came up with the idea that we now know as ChexSystems. What he wanted to do was give businesses like his (not the banks actually) a way to share information about customers that had passes bad checks so that they couldn’t keep doing it at other retail locations. In effect, he wanted to stop people from being able to write bad checks and stem the losses he was having because of them. It was a good idea actually at the time and it grew rapidly.
For 30 years ChexSystems has been the one of the biggest providers of banking and other financial information to the United States banking industry about fraud and abuse. Today they are owned and managed by a company called EFunds Corporation, which is a publicly traded company. ChexSystems is just one of several companies that is owned by EFunds.
The average person doesn’t know about ChexSystems usually until they try to open a bank account and are denied. Unlike the Big 3 credit reporting agencies (Equifax, Experian and TransUnion) ChexSystems has nothing to do with your credit rating. It is simply a way for banks to check out new customers and make sure that they have a clean banking history before they approve a new bank account.
The principal activities that EFunds is involved with as a business entity are:
- Transaction processing
- Risk management
- Professional services to financial institutions
- Professional services to retail organization
- Electronic fund transfer networks
- Government agencies
EFunds has operations that they keep in 4 segments.
- Electronic Payments, funds transfer and other payment processing services
- ATM management services
- Decision support and risk management (ChexSystems)
- Professional services / business process management
EFunds, as stated earlier, owns ChexSystems but they also own Checks Unlimited, Designer Checks, Shared Check Authorization Services (SCAN), Debit Bureau and Deluxe Direct Marketing Services. If you have ever written a bank check, used a debit card from any financial institution, used a money wire transfer service or somehow moved money around within a financial institution then you have used one or more of the services that EFunds owns. In fact, they are integrated into the life of every single American in one way or another, and ChexSystems is just one of their many branches. If you’re keen on contacting them about something you can do so at www.efunds.com.
What is ChexSystems in Layman’s Terms
If you’ve ever had severe problems with a bank that caused them to cancel your account you have created a problem that doesn’t go away very quickly or easily. Once a bank closes your account forcefully the first thing that will happen is that they send all of your info to a credit reporting agency called ChexSystems. If this has already happened and you have tried to open another account with any other financial institution you probably found out that it wasn’t possible. In fact, if you didn’t know about ChexSystems you might have had quite the shock when you found out about them the hard way at your local bank.
Think of ChexSystems as the ‘bank police’. Basically it’s an association of banks and other financial institutions that work together with 1 goal in mind; keep people who are not financially responsible or possibly engaged in criminal activities out of their banks. What ChexSystems does, in the most basic terms, is keep a database of anyone who opens any type of monetary account anywhere in the United States that banks can use to check on new customers. If you open an account ChexSystems knows about you good or bad. When you have problems with any financial institution they get advised of it and keep it on record for 5 years (or sometimes longer).
Consequently, if you have an account closed at any financial institution because of poor financial management skills or because of suspected fraudulent activities your account (along with your name and all other info attached, natch) will be sent to ChexSystems to alert them. In turn they will alert all the other banks and lenders (and we do mean ALL) to let them know about you and the problems you created. What this means is that, once you land in their database, you’re going to have a very difficult if not impossible time trying to get a new account anywhere else for at least 5 years.
This can happen even if the problem wasn’t directly or intentionally caused by you. It can also happen if you’ve been the victim of identity thef or fraud. It can also happen (although not usually) if your bank makes a big mistake.
No matter how it happened you’re going to definitely want to clear up your account. Not being able to open a bank account might not seem like a really big problem but, in fact, it can severely hamper practically anything you do financially. For example, where will you cash your checks every week from your job? How will you pay bills like rent, energy, auto payments and your mortgage, to name a few? If your job requires that you have direct deposit for your checks, how will they do that if you don’t have an account? How about opening a new business? You’ll certainly need a checking account at least to do that.
Those problems are just for starters. If you don’t have a bank account you’ll need to use a check cashing service to do so and they charge for the service. If you need to pay bills with a check you’ll have to get money orders and there’s a charge for that. The time and energy spent just doing those few tasks could actually be substantial, and the gasoline wasted doing them also. You could use prepaid debit or credit cards but their fees can be substantial. No matter how you slice it not having a bank account is going to be a major pain in the tush.
Why We Believe ChexSystems can be an Abuse of Your Rights
The fact of the matter is simply this; every single bank in the United States benefits from incredible protection that is provided to them by the Federal Government through serious and substantial regulation. We believe that with this protection comes the responsibility to serve the public, something that the banks can now legally avoid due to ChexSystems and other reporting agencies.
By letting this happen the Fed is failing to protect the rights of the citizens that it is sworn to protect. If a person has no way to exchange the money that they receive for their labor for goods and services that they require the entire process begins to break down. Without a bank account it is extremely difficult to do many tasks that are required in the United States and ChexSystems makes it extremely difficult for people who have made a mistake to get a bank account.
Staying Off ChexSystems
Although being reported and getting added to ChexSystems is not the end of the world, it can get very frustrating when you are turned down for an account time after time. The best way to stop all this happening is not to get reported in the first place. This will save you all the aggravation associated with trying to get your name cleared. You can achieve this by managing your banking responsibly, even though mishandling can happen due to mistakes or oversight.
Sometimes even banks make mistakes too and therefore it is important to make sure you know you are not on the ChexSystems. You do not want it to be a surprise when you get turned down for an account. Below are some of the ways to stay off the ChexSystems radar:
- Pay back any bank fees in a timely manner
- Avoid getting overdrawn by being aware of your incomes and outgoings
- Let you bank know if you are struggling to pay bank fees
- Make sure you cancel any automatic payments before closing your account
- Contact your bank if you wish to close your account instead of letting it run to zero and just forgetting about it. It may incur charges leading to negative balance
- Do not co-sign accounts with someone you do not fully trust
- Report and lost or stolen checks to your banks immediately
Paying back a debt could go some way in getting you off ChexSystems although banks are not obliged to request your removal after settling your debt. They only have to notify ChexSystems that the debt has been settled.