ChexSystems is Watching You: That’s Why You Can’t Open an Account

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Banks rely on ChexSystems to provide information about individuals who have had problems with insufficient funds in the past. It works much like being denied for a credit card due to past credit history. Even if your current situation has improved, you may be denied a bank account based upon your past banking history.


Lauren Ward, Crediful

ChexSystems is a consumer reporting agency, which was established under the Fair Credit Reporting Act (FCRA). The agency collates shared information about deposit accounts held by the clients of financial institutions which sign up to the service, that is then fed into a database used to perform risk assessment checks upon customers seeking to open new accounts by over 80% of U.S. banks. In this sense, it is merely an information provider. However, around 25% of financial institutions adopt a blanket zero-tolerance policy towards negative data stored in the database, whilst others take certain types of activity flagged by ChexSystems into consideration as part of their decision-making process, or – as is the case for around 50% of U.S. banks – require the approval of a branch manager.

What is the difference between ChexSystems and credit reporting agencies such as Experian?

Unlike credit reporting agencies such as Experian, Equifax and TransUnion, ChexSystems is not concerned with an individual’s creditworthiness and nor does it concern itself with capturing positive consumer behavior data. It is a consumer reporting agency, the overriding purpose of which is to track and store ‘negative’ consumer behavior data in the database such as information about excessive overdrafts, the accumulation of overdraft fees, insufficient fund transactions, accounts closed involuntarily, late payments on banking fees, the habitual use of bouncing checks, fraudulent check deposits, negative balances, suspicious behavior (e.g. structuring transactions to evade the reporting requirements, which is a criminal offense) and even opening too many accounts within a short period of time in order to take advantage of sign-up bonuses.

How does the point system work?

The point system runs on a scale of 100 to 899. The closer you are to 100, the worse your score is considered to be.

How can I find out my score?

The only way to find out your score is to complete the form provided on ChexSystems’ webpage here and send a letter, or a fax to the address and number listed on the document.

I tried to open a checking account but my request was turned down by the bank. What are my rights if I discover that I have been blacklisted due to a negative ChexSystems record?

ChexSystems is governed by the Fair Credit Reporting Act and Accurate Credit Transactions Act, which means that you DO have rights when it comes to understanding what data is being held against you and why, and contesting the data.

You have the right to:

  1. Request and receive a free copy of your ChexSystems report each year, should one exist. A sample report can be found on the ChexSystems website here.
  2. Be provided with proof of the negative data upon request, given the fact that you are entitled to all the information about you in the files of a consumer reporting agency.
  3. Be notified of the fact that negative data contained in your ChexSystems report is the reason behind adverse action taken against you, following which you will be entitled to a free report from ChexSystems within 60 days.
  4. Dispute inaccurate negative data contained within your record with your bank and ChexSystems, which ChexSystems is generally obliged to investigate and remove within 30 days, or 21 days for Maine residents. For example, notes of unpaid debts, incorrect dates regarding account delinquencies on your part and abuses caused by identity thieves. The Consumer Financial Protection Bureau provides sample letters of dispute at bullet point 4 of page 2 here.
  5. Demand the application of a security alert/freeze in the event that you become a victim of identify theft. A security alert will advise financial institutions of the need to trigger enhanced identify verification processes should someone attempt to open an account in your name, whilst a freeze will prevent financial institutions that you have yet to do business with you, from accessing your report.

Unfortunately, although financial institutions and ChexSystems are obliged to investigate when negative data is contested, their decision-making process may still result in an unfavorable decision. If you are unhappy with how they have dealt with your query and believe that their reasoning is faulty or unfair, you can file a report with the Consumer Financial Protection Bureau here and the Federal Trade Commission here.

How can I request my ChexSystem report?

You are entitled to request a free report from ChexSystems once every 12 months, by clicking on the ‘Free FACTA Report’ link located on the left-hand panel on the ChexSystems homepage, also provided here. As you will see, you can request your ChexSystems report online, or by phone, letter or fax. Follow the instructions on the website in line with your preferred method.

How long will negative data about me remain in ChexSystems?

Although, the FCRA stipulates that negative information should not be held for more than 7 years, or, with regards to bankruptcies, any information that is more than 10 years old, according to ChexSystems itself, negative data not relating to bankruptcy will be removed from your ChexSystems report once a period of 5 years has elapsed from the date of the data being captured by the database.

Many banks and credit unions offer checking and prepaid accounts that are designed to reduce risks for both you and financial institution, typically by helping you manage your spending and avoid overdraft and overdraft fees.

Consumer Financial Protection Bureau


In the event that I cannot clear my ChexSystems record, what can I do?

All is not lost. Not all financial institutions rely upon ChexSystems for decision-making purposes. Credit unions in particular are rather forgiving of ChexSystem report histories. Further still, some financial institutions even offer ‘second chance’ accounts, specifically designed for those with a low ChexSystems score.

Due to the higher risk associated with providing banking services to ‘second chance’ account holders, banking fees are generally much higher and such accounts may come with certain limitations, such as lower withdrawal limits, the lack of an overdraft facility and no check writing capability. However, if it is your only option, through good account management, you can prove to regular banks in future that you are responsible enough to handle a normal account after a year or two.

Sign up to a bank which does not use ChexSystems:

Sign up to a bank which offers a ‘second chance’ account:

Credit unions offer the same services as banks and give clients a more personalized relationship.

Meriam Benmbarek, Benzinga

Sign up to a credit union offering a ‘second chance’ account and you may be eligible for a regular checking account within 1-2 years:

Prepaid debit cards might not be the best option for people who could opt for a low-cost checking account instead – but for those who can’t, prepaid cards actually make great checking account alternatives as long as the cardholder takes the time to find the right one.

Casey Bond, Huff Post

Sign up for a prepaid debit card:

Prepaid cards are relatively easy to obtain, irrespective of negative data in ChexSystems, as they don’t use the database or those of its rivals to approve your request. Prepaid cards are an alternative to traditional cards. They do not extend credit and are not linked to a checking account. You are required to charge such cards with money before they can be used to shop online, pay for trips abroad and withdraw cash from ATMs. Each transaction made with the card will cause your balance to go down. When your balance is low, you can reload the card and resume making payments as normal. Many providers of such cards will permit you to have your wages or government benefits paid into them. However, you are typically required to pay a small monthly fee of a few dollars.

Checklist for evaluating a prepaid debit card offer:

Does the card have a monthly fee? If so, it should not be greater than $5.95 If a card charges a monthly fee, what do you get out of it?

Robert Harrow, Value Penguin

Akimbo Prepaid MasterCard Prepaid Card
American Express Bluebird
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American Express Serve Cash Back Prepaid Card
American Express Serve FREE Reloads Prepaid Card
NetSpend Prepaid Prepaid Card
Chase Liquid Card
Prepaid Card
Walmart MoneyCard Visa With Cashback Rewards
Prepaid Card

How Can I Avoid Being Flagged Under the System Again?

DO:

  • Keep track of how long it takes for deposits to be credited to your account and double-check your balance before making payments, particularly if you are often at risk of going into the red
  • Make sure that there are no outstanding fees to be paid, all checks have cleared and that no further deductions will be made from the account by previously established automatic debits prior to closing a checking account. Be sure to confirm with companies applying a direct debit how long it may take for their systems to process this payment change.
  • Request a free copy of your consumer report every year from ChexSystems and rival companies, such as Early Warning or TeleCheck, as not every bank will use ChexSystems.
  • Review your reports each year, looking out for errors and evidence of fraud in order to monitor and maintain your overall financial wellbeing.
  • Pay off debts in line with instalment arrangements on time, or pay off debts completely finances permitting.
  • Set yourself up with banking alerts any time a transaction is made with your card so that you can track potential identity theft more easily.
  • Prioritise your relationship with your bank and be sure to communicate with them immediately when you realise you cannot make a payment that is due. Work with them to formulate a plan for paying off your debt in a timely manner.
  • Update ChexSystems by sending them evidence that a debt has been paid off and request removal. You may find that the next report you request will no longer contain reference to it.

DON’T:

  • Pay by check unless you are absolutely certain that there are enough funds in your account to finance them.
  • Give out your PIN number and if you do, make sure that it is changed after.
  • Close an account by depleting available funds – contactyour bank to make sure it is closed officially in order to avoid unforeseen bank charges.

Open a bank account with one of the best forgiving non checksystems banks.

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By Cards Nerd