What Is ChexSystems?
If you've been reported by a bank, you may be rejected for an account
ChexSystems is a database that banks use to determine if potential customers might present too much risk to the bank. It is owned by Fidelity National Information Services, which provides banking software and other technological support for financial institutions. Services provided by ChexSystems fall under the regulation of the Fair Credit Reporting Act.
A similar service is provided by Early Warning, which is owned jointly by Bank of America, Branch Banking & Trust, Capital One, JPMorgan Chase Bank, PNC Bank, U.S. Bank, and Wells Fargo Bank.
What Banks Report
ChexSystems is different from a credit report, which establishes a history of good and bad behavior. Instead, the only things banks report to ChexSystems are problems they had with account holders, and ChexSystems establishes risk scores for consumers that range from 100 to 899. Examples of reasons why banks might report someone to ChexSystem include:
- Accounts closed for cause: A bank will close an account if it has been used to commit fraud or if the account holder continuously writes bad checks.
- Bounced checks/overdrafts: One mistake likely won't be a problem, but account holders that repeatedly make this same mistake are likely to be reported.
- Debit card/ATM abuse: This includes fraudulent activity such as depositing empty envelopes when making a deposit at an ATM.
- Excessive account applications: Applying for multiple accounts in a short period of time can be a red flag for potentially fraudulent activity.
- Excessive loss of checks/debit cards: A rare lost checkbook or ATM card is not likely to get reported, but someone who reports these stolen repeatedly could be flagged for potential fraud.
- Suspected fraud or identity theft: Using the account for any kind of criminal activity.
- Unpaid negative balances: Again, a single mistake or a negative balance for a day or two is not likely to result in being reported. Failing to address the problem in a reasonable amount of time, however, is likely to get an account holder reported.
Information can stay on your ChexSystems record for five years.
Defining Account Abuse
Reporting agencies like ChexSystems exist to protect banks from consumers who abuse bank accounts to the point of creating financial risk for any bank that allows them to open an account. However, what constitutes abuse is not clearly defined and ChexSystems does not share its methods for scoring with consumers.
In 2015, New York Attorney General Eric Schneiderman challenged banks to change the way they screened potential customers, arguing that poor people were more likely to generate negative reports, even for relatively minor mistakes. For example, if an account holder overdraws his account and cannot afford the overdraft fee, additional fees could pile up, creating a negative balance in the hundreds of dollars for what might have started out as an overdraft of only a few dollars.
Banks argue that account holders who repeatedly accrue negative balances unfairly benefit from overdrawn accounts.
Most major banks ultimately reached agreements with New York in 2015, but consumers still need to be aware that banks are tracking everything they do with their accounts, and negative balances can create major headaches down the road.
Getting Reported: Consequences
Some banks won't accept you as a customer if you have been reported to ChexSystems. Other banks will allow you to open an account if you have proof that you have paid off a balance you owed the other bank.
Some banks might offer you an account with higher fees, which help to offset the bank's risk of having a customer with previous mistakes. You also may have to do without a checking account while taking other actions to show that you are more responsible with your money.
If you have a negative report, you can work with ChexSystems or the reporting bank to clear up your report as quickly as possible.
Accessing Your File
You can request a report from ChexSystems if you have been denied an account in the last 60 days. Ask the bank to give you information on how to receive a report or visit the ChexSystem website. You should receive the report in about five business days, allowing you to see the specific claims made against you. You also can request your score.
When you pay off any owed amounts, request that the bank send in a report to verify the account has been paid. You also can request a letter stating this and take it to the bank where you are trying to open an account. You can dispute any information by contacting ChexSystems as well.
Avoid Being Reported
If you have a negative account balance you can't pay right away, some banks might work with you as long as you contact them in a timely manner and make a genuine effort to bring your account back into the positive. This works best if you communicate with your bank in person at the branch.
Make it a priority to stop the overdraft cycle as quickly as possible so it does not become a constant problem and risk. Balance your checking account regularly, and stick to a written budget to avoid overspending your balance in the future. The best way to avoid having a ChexSystems report is to manage your bank accounts responsibly. Most overdrafts happen when people don't track their spending closely enough.
Clearing Up Issues
Take a proactive approach if you've been reported to ChexSystems. Contact the bank immediately to begin repairing the problem. If you cannot pay off all of the money you owe to the bank at once, you might be able to set up a payment plan with the bank.
Once the money is paid off, the bank should report it to ChexSystems so your report can show that the debt is paid off. A bank may be willing to work with you at this point, and a smaller local bank or credit union may be more open to working with someone who's had issues reported to ChexSystems.
Managing Without a Checking Account
It can be challenging to get by without using a bank for electronic access to your money. You could make do with a savings account for a short time, but your banking fees likely will increase.
While addressing your report with ChexSystems, you'll have to monitor your spending more closely and pay bills with money orders or prepaid credit cards.