Four Companies That Know More About Your Banking Than You May Know

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As important as it is to maintain a healthy financial status, some events in life can catch an individual off-guard. Unforeseen expenses, bad luck with investments, and becoming a victim of fraud are just three of the many ways that someone with a healthy financial history can be left with financial burden. What many are unaware of, though, is that more than just your credit can take a hit at times like this.

To preface this, one must be aware of a company called ChexSystems, a division of Fidelity National Information Services (FiS) and their eFunds subsidiary. ChexSystems is a consumer reporting agency, or CRA, which acts in a similar fashion to a credit reporting agency like Equifax, TransUnion, or Experian. By partnering with 80% of the banks in America, ChexSystems creates a profile detailing the personal banking history of an individual and generates a QualiFile score – effectively a personal banking version of a credit score. This QualiFile score, often called a ChexSystems Score to avoid confusion, is created through surveying the previous five years of activity in a bank account. Anything negative, such as foreclosed accounts, returned checks (bounced checks), flagged ATM behaviour, or replaced cards, defines the score you receive, somewhere between 100 and 899. Parts of this information can only be removed if it is determined to be inaccurate following an investigation requested by a customer.

As per the Fair Credit Reporting Act passed in 1970, citizens are entitled to a free copy of their personal report from a CRA (ChexSystems included) once every 12 months, or within 60 days of being turned down for a bank account. The score between 100 and 899, though, is only available by request from ChexSystems and costs a little over $10. Keep in mind that excessive requests for a copy of a report or score can be noted in the ChexSystems database, affecting an individual’s final score. As of 2012, a score of 580 or below is considered to be an ‘averse’ risk to a bank, 545 or below being a moderate risk, and 525 or below being an aggressive risk. While the final decision of opening an account belongs to a bank employee, these scores establish a first-impression that weighs heavily on the process.

Until late 2015, ChexSystems was a highly controversial system due to the harsh restrictions it frequently led to. The system was and still is notoriously difficult to escape from, and previously held on to banking information for up to 10 years. The system was considered so critical and influential that a single bounced check or a single dip into overdraft would deny a potential customer a bank account. This ultimately led to millions of Americans joining a group coined the “unbanked”, or Americans who are forced to use expensive bank account alternatives. In 2017, the FDIC published a report estimating that 6.5% of all American households were unbanked, with an additional 18.7% were ‘underbanked’, or individuals who were forced to use services such as payday loans, non-bank check cashing, or refund anticipation loans. ChexSystems is still so criticised that a simple internet search of the company will return a variety of ways to “get out of ChexSystems”, and a list of banks that do not use ChexSystems. Johnathan Mintz, commissioner of New York City’s Department of Consumer Affairs, told the New York Times that there have been “too many experiences where even banks that have offered to be flexible […] find their own internal risk management systems mean that their hands are tied”. This controversy caused multiple banks, such as Santander, Capital One, and Citibank, to announce that they would relax their ChexSystem policies.  This would relax the guidelines concerning what would be reported to ChexSystems, allowing for the average QualiFile score to rise and for millions to be eligible for a standard bank account.

An alternative to ChexSystems is Early Warning Services, a CRA system often used by banks as a second opinion when evaluating a potential account holder. Early Warning Services, commonly abbreviated as EWS, is owned by some of the largest banks in the country including Bank of America, BB&T, JPMorgan Chase, PNC, Wells Fargo, and Capital One. Instead of trying to challenge the well-established ChexSystems, EWS and the services they offer function as a second line of defence for banks. Rather than having a single system evaluate a customer, EWS provides banks with a more in depth and reliable evaluation, highlighting potential abnormalities that would bring a QualiFile score down.

To be clear, though, EWS itself is not actually a service. Rather, it offers a suite of services for banks ranging from ChexSystem-like assessments, to internet or telephone authentication services, to check deposit services. While ChexSystems focuses solely on the banking reputation of an individual, EWS records the history of an individual in addition to helping prevent fraud with their catalogue of verification software. EWS also designed the Zelle Network, a rival to PayPal’s Venmo, adding a peer-to-peer payment service to their portfolio.

While EWS’s services are largely well received, the Zelle service has recently become controversial as users across America have fallen victim to scam artists using the app. Dozens of users reported losing their money after attempting to buy items on sites like Craigslist only to have the seller accept the payment, shut down the receiving account, and cease all contact. After filing their complaints, Zelle refused to conduct any investigations because the scammed individuals initiated the payment. Zelle’s customer service would simply reiterate that Zelle is meant to be used to transfer money between people who know each other, rather than an individual and a stranger on Craigslist.

A third, much less common system that could be consulted when trying to open a bank account is the TeleCheck system. TeleCheck is a division of the company First Data that offers check validation services to any businesses wishing to accept checks as methods of payment. Rather than using banking or credit history to develop a profile for an individual, TeleCheck records and references the individual’s check writing history in order to determine potential risk. Any checks that are cleared in the system contribute to a positive profile, while any returned checks, or checks that ‘bounce’, contribute to a negative profile. Furthermore, any checks that are initially cleared but then are found to bounce later can be reported to TeleCheck, contributing to a negative profile.

The TeleCheck system is put to use when a cashier receives a check and either scans or manually enters it in to the TeleCheck system. The check information is then cross referenced with the customer’s records, as well as a comprehensive system of values that can indicate a possibly attempt at fraud or forgery. These values include the stores, items, and amounts commonly associated with attempts at fraud, among ‘hundreds of other values’, according to the TeleCheck website. If the check clears the system, the transaction is recorded and the customer has to sign a receipt, but if TeleCheck declines the check, a “code 3” will appear to warn the cashier of a risk.

The most common issue with TeleCheck is that the system is based solely off of an individual’s history of payment with checks. If there is no history, or if the history is sparse, odds are high that the check will be declined regardless of authenticity. This, along with TeleCheck’s system of items and stores frequently visited by frauds, leads to rare purchases like televisions or smartphones being rejected. The only checks that TeleCheck does not verify are government or international checks.

The major issue with TeleCheck’s system is the history they have, namely the $3.5 million fine stemming from the company breaching the Fair Credit Reporting Act mentioned earlier. This fine originates from a process called information furnishing, which is when a company provides customer information they have gathered to another company for various reasons. Many CRAs share information with one another or with banks that request this information for customer profiles.

TeleCheck’s parent organization, First Data, operates a sister company to TeleCheck named TRS Recovery Services which facilitates debt collection and furnishes TeleCheck with additional information for their fraud prevention system. In mid-2013, the Federal Trade Commission, or FTC, began an initiative to investigate the practices of information furnishing companies, making sure they are following the guidelines of the FCRA. In January of 2014, the federal court found that TRS Recovery Services was guilty of breaching the Furnisher Rule of the FCRA, which states that any service furnishing a CRA with consumer information must ensure that the provided information is accurate and complete. Furthermore, both TRS and TeleCheck were found guilty of inaction following customer disputes regarding their TeleCheck reports, breaching the FCRA clause that any information reported to be inaccurate must be promptly investigated and corrected. The severity of the situation was outlined by the Federal Trade Commission themselves by saying;

If CRAs like TeleCheck provide merchants with inaccurate information, those merchants may wrongly deny consumers the ability to buy even the most essential items, like food and medicine. The FCRA gives consumers the right to dispute and correct inaccurate information.

Jessica Rich, Director of FTC’s Bureau of Consumer Protection

Since the fine, TeleCheck and TRS Recovery Services have presumably changed their practices to adhere to the FCRA guidelines as no further fines have been issued. They have also become far more transparent about the process in which checks are judged and scanned.

Another information furnishing company to be aware of is Certegy, a CRA that specializes in check validation and clearing house services. A clearing house, often associated with commodity trading but can be used in the clearing of checks, is a service that acts as a middle-man for transactions between two entities. After their system approves a check, which functions in a way similar to TeleCheck’s, Certegy immediately debits the customer’s bank account and credits the business. This allows for a much quicker exchange of funds, benefiting both parties involved. Certegy also provides services for online or mobile payments, and a service that holds and cashes groups of installment checks (checks to be cashed at various future dates).

Certegy and TeleCheck are surprisingly similar though. Not only are both companies criticised for their frequent rejection of valid checks, they both received $3.5 million fines around the same time. Certegy was charged in August 2013, a few months prior to TeleCheck, for similar reasons. Certegy was fined for the failure to ensure accuracy of the customer information in their system, as well as the failure to have a written, implemented procedure governing the accuracy and integrity of any information furnished to another CRA. Certegy was also fined for their convoluted and often overly demanding process required for a customer to dispute or receive their yearly report.

Certegy’s troubled past extends further though, with another incident closely following their acquisition by Fidelity National Information Services (FiS) in 2006. Certegy suffered a major data breach in June of 2007 resulting in a leak of data for, what the company thought was, 2.3 million customers. The following July, just a month later, Certegy announced that the number of affected customers was closer to 8.5 million and that a lawsuit would be settled for those in question. The leak happened when William Sullivan, an employee of Certegy at the time, downloaded customer information and sold it to someone who then shared it with various companies. Sullivan, who was promptly fired upon his discovery, was sentenced to 57 months in prison and was ordered to pay nearly $4 million in restitution.

On August 31st, 2018, FiS sold the company to Variant Equity Advisors, an investment firm that specializes in facilitating business transactions. The young firm, founded in August 2017, also owns Curb, a company that specializes in payments for taxis and for-hire ride shares, and Coach USA, a company that operates a variety of coach bus lines.

If you are looking to open a new bank account, it is highly likely that your QualiFile score and your EWS report will be consulted, while some banks may use your TeleCheck profile as a third reference. This is the point at which ‘life can happen’, as a low score or a controversial report can prevent a potential customer from opening a standard account, leaving them with only a few alternative options.

Second chance banks are institutions or divisions that are directed towards individuals who are caught in a situation with low credit, low QualiFile scores, or a troublesome EWS report. Believe it or not, being ‘blacklisted’ by ChexSystems is somewhat common. The most common second chance banks come in the form of credit unions or smaller, more local banks. Some larger banks, such as Wells Fargo, Radius, Memory Bank, PNC, Woodforest, and BBVA, offer specialized accounts from a second chance banking division. While credit unions and smaller banks may not have much infrastructure, these larger banks allow second chance bank account owners to recover their score while still having access to ATMs and branches across the country. For anyone willing to part with brick-and-mortar locations, GoBank is a completely digital bank that offers second chance bank accounts that can be accessed through your phone or computer, or at other ATMs for a fee.

Almost all of these accounts, from big banks or small credit unions, hold caveats with their accounts, though. With any sort of second chance banking account, conditions such as minimum balances, high rates of interest, or a lack of a physical bank card exist and are how the company safeguards themselves. Some banks even utilize pre-paid debit cards for their accounts, which in turn can help their customers practice healthy spending habits. Proving your reliability often results in temporarily reduced restrictions, though, such as in Wells Fargo’s “Opportunity Checkings Account” which waives the $10 monthly fee so long as at least $500 is deposited through direct deposit every month.

Though not always associated with ChexSystems, second chance bank accounts provide excellent ways to begin raising either your QualiFile score, or enhancing your EWS report. Depending on the bank providing the account, a steady increase in either of these systems shows larger banks that an individual has changed their banking habits. Remember, the final decision to open a bank account is made by the bank employee and their perception of the risk factor involved. Staying updated on personal financial standing with various CRA reports can help identify mistakes and prevent any future banking issues.

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By Cards Nerd