ChexSystems is a nationwide specialty consumer reporting agency (CRA) under the federal Fair Credit Reporting Act (FCRA) that is used by more than 80% of United States banks and credit unions help in the decision-making process of financial products. ChexSystems’ clients regularly contribute information on closed checking and savings accounts. This means that if a consumer has ever opened a savings or checking account, they have a ChexSystems report also known as a consumer disclosure as ChexSystems refers to them. This agency will provide consumers’ information on the use of their accounts.

ChexSystems puts together a data report that can be used by financial institutions and merchants to help them decide about the denial or approval of the financial products that you have applied for. Under permission from the FCRA, they can obtain financial information and primary functions to help businesses and banks assess risk when opening new accounts.

Vice President of Public Policy, Telecommunications and Fraud at the National Consumers League, John Breyault puts it simply when he says:

“[Banks] use ChexSystems for sort of a particular use case, and that’s to find out if you’re a risk to the bank when you open a checking or savings account with them.”

 It is important to note that just like other CRAs such as Equifax, Experian, and TransUnion, ChexSystems is allowed to include your name on lists that creditors and insurers use to make prescreened product offers. However, you can opt out of these lists. The only difference between ChexSystems and other CRAs such as Equifax, Experians, and TransUnion is that ChexSystems collects data about how you’ve used past bank accounts instead of how you’ve paid off your debts. Generally, ChexSystems only lists negative information on your report.

As a service-based organization, ChexSystems offer services including account history reports, identity verifications and transaction monitoring to ensure consumers following the appreciate financial laws.

If a consumer applies for any bank account, banks will call upon the services of ChexSystems to check the banking history as well as the data for any risks on the file. If the consumer is rejected from a bank, it means the report from ChexSystems displayed risk factors. 

The information obtained by the banks from ChexSystems is made up of two components which include a risk score and a report. The risk score ranges from 100 to 899 and the higher the consumers score, the better. This shows the consumer is less ‘risky’ and therefore, has a higher chance of being approved.

The report will display items to the bank including unpaid fees, check bounces and any form of suspected fraud, along with any information that makes the consumer a risky customer when it comes to handling their financials.

The report generated by ChexSystems is data banks have reported about a consumer from the past 5 years. The bank will add to the consumer’s file, any overdrafts, fraudulent checks and any for suspicious behavior that could deem them a risky consumer. 

If a consumer has been suspected as a risky consumer and rejected an account with any bank, they will appear in the system for a 5-year period.

However, if the consumer believes they are not at fault, they can request a report from ChexSystems and dispute any claims against their account.

Here are the right steps to take:

  1. Request the report from ChexSystems, this can be done on their website
  2. Review the report and check for any wrong or outdated information
  3. If any errors are found, the account can be disputed, which can also be done via the ChexSystems website
  4. The investigation usually takes around 30 days
  5. Also, ensure ChexSystems contacts the bank who provided the incorrect information to have it removed.

How does ChexSystems affect consumers?

ChexSystems provides banks and credit unions with the following:

  1. Risk score: ChexSytems Consumer Scores are based on your banking behavior and they go from 100 to 899. Higher scores show that you are a less risky customer, so the higher score you have, the better.
  2. Report: ChexSystems reports (Consumer Disclosures) show unpaid negative balances (primarily from overdrafts), suspected fraud, checks bounced at retailers, credit enquiries, identifying information (name, social security number, past addresses), public records, consumer-initiated security freezes, and check orders.

You can request for a free report or risk score from the agency, but the most important to a consumer is the report because it gives you a look into why a bank has denied your request. Usually, consumers can get a free report annually. You can request for the report by filling the consumer disclosure for on the ChexSystems official website.

The consumer disclosure is used by banks to determine whether they can grant you a checking or savings account. There are numerous instances where people have been unable to open accounts due to their financial history. This is because banks report to ChexSystems any types of account problems such as bounced checks, fraud, returned checks, insufficient funds, etc. This information remains in your report for up to five years or until the source of the information requests for its removal or until ChexSystems is obligated to remove it under applicable law or policy.

It is important to note that you can dispute a ChexSystems report if there are any discrepancies. You can dispute inaccurate information about you or your financial history with the financial institution that issued the information or with ChexSystems. Dispute investigations with Chexystems can take 30 days or more if information or documentation is submitted in the middle of an investigation.

Being up to date with consumer reports such as ChexSystems reports generated on you makes you financially empowered. ChexSystems reports can prevent you from having a bank account, which means you will be unable to safely store your money, you will be unable to get a free debit card for purchases, and you will be forced to pay high fees for sending and cashing checks.

Being financially empowered by being aware of what’s on your ChexSystems report allows you to dispute any inaccuracies that may be present in your consumer disclosure. You will also be able to prevent discrepancies such as insufficient funds and bounced checks that may negatively affect your financial life.

How does ChexSystems affect consumers?

Obtaining a record with ChexSystems can have impacts on a consumer’s reputation with any bank they are looking to start banking with.

In order to ensure ChexSystems doesn’t have a file on record, a consumer can follow some easy steps.

  1. Get Overdraft Protection – this prevents checks for bouncing and if the account is overdrawn.
  2. Check accounts – being mindful of all the bank accounts gives the consumer more information on what might be happening to the account. Online banking is the best option for this.
  3. Check closed accounts – when closing accounts, consumers need to check there are no fees applied to the account once it has been closed.
  4. Communicate with the bank – if a consumer moves addresses, doesn’t turn recurring payments off or has any financial changes, they should alert the bank.
  5. Check with ChexSystems – every 12 months consumers should request a report to ensure all bank accounts are showing no discrepancies
  6. Be educated in the rules and rights – understanding a bank’s policy can help ensure there are no surprises when it comes to ChexSystems.

Can ChexSystems take wages from a consumer?

ChexSystems does not take wages from a consumer. As a regulated consumer reporting agency (CRA) under the federal Fair Credit Reporting Act (FCRA), ChexSystems offers consumers a free annual report. However, if you need a report for any reason, you are required to pay $10.50 to get your consumer disclosure.

While one might think that incase or a dispute the investigation might be costly, the FCRA mandates that must conduct a free of charge reasonable investigation of your dispute. This means that the consumer can get their consumer disclosure cleared of any inaccuracies free of charge. After complete investigation, ChexSystems does not require payment to remove inaccurate consumer reporting information.

It is also important to note that ChexSystems is not a collection agency and will therefore not contact a consumer as part of an effort to collect debt; neither do they make unsolicited calls to the consumer.

Wage Garnishment

A wage garnishment is a government agency order or court order that requires your employer to withhold a certain amount from your wages and send it to your creditor. Commonly, child support, consumer debt, back taxes, and student loans are sources or wage garnishment. It is important to note that wage garnishment is fully dependent on the state and federal garnishment limits. Wage garnishing explains the process of where a creditor is allowed to take a payment directly from a consumer’s bank account when they owe debt.

ChexSystems are not a collection agency and will not make any contact with a consumer in an effort to collect debt. They will never require payments from a consumer to investigate the consumers reporting history and will not require a payment to remove their record from the data.

the Minnesota based organization, ChexSystems will not garnish a wage from anyone; however, a creditor can have the right to perform this.

If your ChexSystems report has overdrawn accounts or unpaid bank fees, this may be due to wage garnishment. Banks only run credit checks if you apply for credit and they do not search court records to see whether you have judgment against you. However, ChexSystems reports may have information on your banking behavior which shows information such as bankruptcy, unpaid negative balances, bounced checks, etc. Although creditors cannot set off your account after you have filed for bankruptcy, the record will show that you have filed for bankruptcy which severely affects your credit and your chances of opening a new bank account.

However, there are other options that can be used to deal with wage garnishment. You can get a more suitable plan to pay off your debts and ensure that with time, your ChexSystems risk score rises. Debt relief may repair your financial records if it carefully and diligently executed. To ensure that your wages are not garnished, it is important to pay your child support, alimony, back taxes, and student loans on time, so that your ChexSystems report remains clean.

Final thoughts

Reported by Bankrate in an article on banking smarter, this year, the J.D. Power 2019 U.S. Retail Banking Satisfaction Study found around 4 percent of consumers have switched banks in the past 12 months, which means the services of ChexSystems is in high demand.  

Greg McBride, CFA, Bankrate chief financial analyst, suggests consumers need to be smart about their banking choices.

“The marketplace is constantly changing with new offers, innovative products and features that might put more money in your pocket or make your life easier. Or both. So it pays to have your antenna up and be on the lookout for something that is a better deal or works better for your financial lifestyle”.

Consumers need to be aware of their banking choices so they don’t find themselves with a ChexSystems record.

ChexSystems ensures all consumers are safe and secure with their finances. A ChexSystems report can be the difference between a successful bank account application and an unsuccessful one. However, it also protects businesses and consumers from any fraud or mistreatment of finances, it ensures all consumers play by the rules.