Cards Nerd

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How does ChexSystems affect consumers?

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.

How To Improve the ChexSystems Score

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.

The denial of an application to open up a checking or savings account at a financial institution is often due to negative data recorded against your name in a database run by the consumer reporting agency ChexSystems, or one of its smaller rivals such as Early Warning System, or TeleCheck.

What rating system is used by ChexSystems?

ChexSystems assigns a numeric score to each individual, which is called a ‘QualiFile’ Score (however, we will simply refer to this score as your ‘ChexSystems score’ for ease of reference). 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. Its purpose is similar in nature to that of the credit score. However, whilst your credit score is always taken into consideration when a financial institution is deciding whether or not to lend money to you, not all financial institutions will also take into consideration your ChexSystems score for this purpose. Your ChexSystems score is predominantly used to assess the risks of providing you with a checking/deposit account.

Do I need to request my ChexSystems score?

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. If your report is clean, there is no need to pay for a ChexSystems score as it should be unblemished. On the other hand, if your report contains negative data, you are advised to request your actual score and attempt to clear the negative data held about you in the database.

How can I request my ChexSystems score and how much will it cost?

Should the need arise, you can request your ChexSystems score for free once every 12 months. You are also permitted to receive your score following a denied application to open a bank, either verbally or via a written notice, should the bank wish to provide you with this information. There is no obligation on the bank to do so.

In order to can request your ChexSystems score, you must complete the form provided on ChexSystems’ webpage here and send a letter, or a fax to the address and number listed on the document. It is not currently possible to find out your score online or by phone. You cannot find out your score from any third party vendor so do not be fooled by scams purporting to obtain this for you. If you request further confirmation of your score within a 12-month period, you will be required to pay a fee of $10.50 to ChexSystems.

You must be at least 18 years old to request and receive your ChexSystems score. Any younger and an adult will need to submit the request by mail on behalf of that child, including the information requested at the bottom of the ChexSystems page here.

Where the bank is happy to disclose your ChexSystems score, the notice must include certain pieces of information as stipulated by the Fair Credit Reporting Act (FCRA):

  1. Your ChexSystems score
  2. Other consumer scores used in the bank’s decision
  3. Any factors that had a negative effect on your ChexSystems Score
  4. The date upon which your ChexSystems Score was calculated
  5. The name and contact information of any consumer reporting agencies that supplied them with information used in their decision-making process

If the bank makes your score available, they also have to tell whether any other consumer scores were used in their decision, any factors that negatively affected your score and when your score was calculated.

Rebecca Lake, My Bank Tracker

How is my ChexSystems score calculated?

ChexSystems does not disclose the formula used to calculate ChexSystems scores. However, information taken into consideration when calculating your score is derived from the following sources:

  • ChexSystems consumer report
  • Consumer credit reports
  • Data from the ChexSystems DebitBureau (an agency which compiles data on bank accounts)
  • Employment history
  • Information in the public record stored in LexisNexis (e.g., bankruptcy notices, criminal convictions and residential history)
  • Payday loan history

How do banks use ChexSystems scores when deciding who to accept or decline for a checking account?

According to information received in March 2012, ChexSystems provides “cutoff” segments, a consumer classification system which banks use to approve or decline consumers in line with their risk appetite. Consumers which pose the least risk are classified as ‘averse’, which covers scores from 580 to 899. Consumers posing a moderate risk are classified as ‘moderate’, which covers scores from 545 to 579. Consumers which pose a more significant risk are classified as ‘aggressive’, which covers scores from 525 up to 544. Naturally, anything less than that and most banks will lack the appetite to conduct business with consumers possessing such scores. Consumers have been denied for checking accounts with scores of 174, 295 and 553.

Remember that on the ChexSystems scale of 100 to 899, the lower your score is, the more likely it is that banks will be concerned that your account will frequently have a negative balance, and that fees will be left unpaid, or unpaid for prolonged periods of time. Therefore, a score above 580 is ideal to maximize your chances of being accepted for a checking account.

Other scores you may see associated with your ChexSystems report are ‘9998’ and ‘9999’. Don’t be alarmed: 9998 indicates that the individual associated with a specific Social Security Number is deceased; and 9999 indicates that there is not enough data available to form a score for the applicant. If the individual associated with a specific Social Security Number is not deceased, you can contact ChexSystems using the information here and request an amendment to the account.

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.

How can I improve my ChexSystems score?

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.
  • Consider asking your bank to provide you with an overdraft protection service.
  • Request text message alerts in order to be notified when your balance is getting low.

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 and close accounts too often – this is viewed upon negatively by banks.

What options are available to me if I cannot access mainstream checking accounts?

There are a range of options available to you if you choose not to dispute your ChexSystems record and would prefer to wait 5 years for the information to be removed from the database.

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. Finally, 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 such as Early Warning System or TeleCheck, to approve your request.


How to dispute ChexSystems

Most banks don’t even bother to ask what ChexSystems’ record shows. If you’re listed for any reason, you lose. Jane Bryant Quinn, The Washington Post

“My application to open up a new bank account was denied and I was informed that this is because of information recorded against my name in ChexSystems. What is ChexSystems and how do I remove my name from the database?”

The denial of an application to open up a checking or savings account at a financial institution is often due to negative data recorded against your name in a database run by the consumer reporting agency ChexSystems, or one of its smaller rivals such as Early Warning System, or TeleCheck. Financial institutions subscribe to the database and share information about clients with less than stellar banking histories. The ChexSystems database is then used by over 80% of U.S. financial institutions to perform risk assessment checks upon customers seeking to open new accounts, of which, approximately 25% adopt a blanket zero-tolerance policy towards negative data stored in the database.

Unless the financial institution that provided information to ChexSystems requests the removal of that information, your information will remain in your ChexSystems report for a period of 5 years.

Anyone who has ever opened a bank account in the U.S. is likely to have a ChexSystems record.

Richie Bernardo, Wallet Hub

In many cases, the information relayed to ChexSystems is inaccurate, the result of fraud, or simply incorrect. For example, you may have already paid off a debt which is still marked in the system as ‘unpaid’. Although it is not possible to avoid having your name listed in ChexSystems , you can dispute any errors and restore your good name by having the incorrect information removed.

A study issued by the Federal Trade Commission in 2015 found that approximately 23% of consumers had discovered inaccurate information in their credit reports.

Most ChexSystems reports don’t show how much money was owed. It could be $4 or $40,000. Nor do they routinely show whether the overdraft was repaid.

Jane Bryant Quinn, The Washington Post

What are my rights if I choose to dispute information recorded against my name by ChexSystems?

ChexSystems is governed by the Fair Credit Reporting Act and Accurate Credit Transactions Act, which grant you the right to understand what data is being held against you, why, and to dispute the data.

You are entitled to request a free report from ChexSystems once every 12 months, or following a denied application to open a bank within the past 60 days. In the latter case, the bank which turned you down must issue an ‘adverse action’ notice to you, which contains the contact information of the entity which reported you. You can then request a free copy of your ChexSystems report from that company.

In order to successfully dispute information held about you within the database, you need to know precisely what information is contained within your ChexSystems report. Below, you can find a step-by-step guide to the process.

How do I file a dispute with ChexSystems?

Contact ChexSystems

The Fair Credit Reporting Act grants you the right to know what information is being held against you, the source of that information and to request proof of the information under dispute in order to validate its accuracy. The proof provided should include the name, telephone number and address of the person or business alleging that the information is true and was accurately recorded.

You can request a free report 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.

ChexSystems Contact Details

Mail 📠 Fax 📞 Telephone
Chex Systems, Inc.   Attn: Consumer Relations 7805 Hudson Road, Suite 100 Woodbury, MN 55125 602-659-2197 800-428-9623

Evaluate your ChexSystems report

The FCRA stipulates that consumer reporting agencies such as ChexSystems must accurately report information disseminated in the financial markets. In order to use this obligation to your advantage, you must carefully analyze the information contained within your report to identify any inaccuracies and/or clerical errors.

You should ask yourself the following questions:

  • Has your personal data (e.g. name, social security number, addresses and bank account number) been recorded correctly?
  • Have you ever been a client of the bank which recorded information against you?
  • Do you recognize the debt recorded against your name?
  • Is the amount of the debt recorded against your name accurate?
  • Is a paid debt marked as unpaid?
  • Are the dates of the alleged mismanagement which led to the information being recorded in the system accurate?
  • Could the mismanagement have been the result of identity fraud?

Carefully make a note of every error you discover and search for evidence that can support your claim that the information is incorrect.

Send a formal letter of dispute to ChexSystems

You are advised to raise a dispute with ChexSystems first and not your bank, as you may be lucky and find that ChexSystems is unable to respond to your within the requisite timeframe due to a delayed response from the bank, meaning that by default, even if the information were true, they are required to erase it.

The best contact method is to send a formal written letter of dispute. Ensure that you choose certified mail with a request for a return receipt in order to receive proof of mailing and verification that your letter was successfully delivered. Furthermore, be sure to retain a copy of each letter sent to ChexSystems for your personal files.

Use the form provided by ChexSystems here to file your dispute. You can save and print the document, complete it by hand and then place it inside an envelope with a dispute cover letter on top detailing the reason that you are contacting them and any other documentation you need to provide (such as a photocopy of a document proving your identity) behind it. You can find a dispute cover letter template here.

The ChexSystems form provides space for up to 3 disputed items. Should you have further items to dispute, note this in the cover letter and attach as many forms as you need to in order to comply with their requested form of complaint. If you lack space in the official form, number the documents you wish to enclose and you can elaborate further on each item in your covering letter, referring clearly to each enclosure.

If you choose to include a copy of your ChexSystems report in your letter, you should not enclose the original ChexSystems report in your letter. Only provide a copy to ChexSystems.

Alternatively, you can file your dispute online by using the form in the ChexSystems link here. You can dispute up to 50 items in the online form by selecting the ‘Dispute Another Item’ button towards the bottom of the page.

To submit your dispute to ChexSystems online, simply enter the security code at the bottom of the form, and then click the ‘submit’ button

To fax your dispute to ChexSystems, send the relevant documentation to 602-659-2197.

To mail your dispute to ChexSystems, direct your letter to:
ChexSystems, Inc
Attn: Consumer Relations
7805 Hudson Road, Suite 100
Woodbury, MN, 55125.

Remember to include the following:

  • Relevant information about the disputed information (e.g. account numbers and the names of the banks alleging mismanagement or misconduct)
  • A detailed explanation of why recorded information is inaccurate
  • Photocopies of documents that support your claims

ChexSystems must respond within 30 days of receipt of your letter/file/call (or 21 days for residents of Maine). Failing that, the disputed information must be removed from your ChexSystems record, irrespective of whether it is accurate or not. Note that if you submit further evidence to support your claim whilst ChexSystems investigation is still ongoing, the investigation period will be extended by a further 15 days. Confirmation of the delivery date and time can be provided by the postal service you chose to use, assuming that you requested a notice of receipt.

Should ChexSystems fail to respond in a timely manner, another letter should then be sent to ChexSystems requesting the removal of the item on the basis that they failed to respond within the timeframe granted by the Fair Credit Reporting Act. You can find a sample letter demanding removal of the information here.

On the other hand, if ChexSystems responds but fails to provide sufficient evidence to corroborate the information in the report, you should respond to them using the template letter here.

In the best case scenario, ChexSystems will provide you with a letter of response confirming the removal of the information from their systems.

However, in the event that ChexSystems notifies you that the bank validated the information contained within the report, you will need to write a letter to your bank. Proceed to the next step for an explanation as to how you should go about doing so.

Send a formal letter of dispute to your bank

Original creditors, such as banks, don’t typically have to validate your debts. They do, however, have to conduct an investigation if you dispute the validity of their reporting method.

Let Me Bank

If the information contained within the report is accurate, try to reach a settlement with your bank over the amount due and how this will be repaid (e.g. in installments).

Where you are in a position to dispute the information, you can find a suitable letter template here. Like ChexSystems, the bank has 30 days to conduct its investigation into the disputed information. Due to poor record-keeping practices and the destruction/loss of data whether intentionally, or unintentionally, it is often the case that the bank is unable to provide sufficient evidence.

Should the bank fail to conclude its investigation into the matter and respond to you within 30 days, you have the right to file a lawsuit against the bank for providing information to ChexSystems in the absence of records which validate the accuracy of the report. Proceed to the next step for further information on how to use the threat of legal action to your advantage.

Proceed to take legal action

Taking legal action is not ideal due to the cost involved in hiring a lawyer and the lengthy, unpredictable nature of the process. However, the mere threat of legal action through the filing of a small claims suit may be enough to convince ChexSystems and your bank to remove the negative information after considering the time and cost involved in proceeding to court. There is a small filing fee associated with this, of around $40. Your claim is that ChexSystems/the bank/other financial institution in question have failed to comply with legislation regarding fair reporting from such institutions, notwhether you did or did not rack up the debt in question for example.

What to do in the event of a procedural failure with ChexSystems

If ChexSystems or the bank confirm that the information held in your report is inaccurate/incorrect, but after reviewing your updated report again you note that it was not deleted, you will need to send a Procedural Request Letter which can be found at the bottom of the page here. Both ChexSystems and the bank will have 15 days to re-investigate the issue and confirm that they have updated your records, or they may be liable to investigation by the Federal Trade Commission. You have every right to initiate legal proceedings at this point if they fail to respond after 15 days.

Filing an official complaint with industry regulators

If neither ChexSystems nor the bank provide you with a response within 15 days, you are entitled to file a complaint with one of the following bodies:

In addition, you have every right to initiate legal proceedings against either ChexSystems or the relevant bank in a small claims court.

The process involved in removing negative data held against you from the ChexSystems database is a lengthy one. However, perseverance and patience is key to restoring your good name.

Consumer Statements

Assuming you do not proceed to court for whatever reason, another option available to you is to add a consumer statement to your file. Doing so will alert financial institutions which consider applications from you in future, to the fact that you disputed information held in your file and were unable to reach a resolution with the entities involved.

The statement must be no more than 100 words (or 200 words for Maine residents), must refer directly to the matter being disputed and must not include the names of the affected parties (whether they be people or businesses). To file a consumer statement, click on the ‘Request for Consumer Statement form’ link on the ChexSystems website here for the form. 


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

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
Prepaid Card
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.

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