ChexSystems is a financial service that helps banks and credit unions identify customers who may pose a risk to the institution. The service provides a database of information on consumers who have been reported for fraudulent or abusive behavior.<\/p>\n\n\n\n
This information helps financial institutions make informed decisions about approving new accounts, issuing loans, and extending credit lines. ChexSystems also offers fraud monitoring and loss prevention services to its clients. In recent years, the company has expanded its services to include identity theft protection and credit monitoring. ChexSystems is a valuable resource for banks and other financial institutions looking to protect themselves from fraud and abuse.<\/p>\n\n\n\n
How does ChexSystems work?<\/h2>\n\n\n\n
Banks and credit unions use ChexSystems to screen new applicants for checking and savings accounts. When you apply for a new account, the bank will run a check on your name through ChexSystems. If your name shows up in their system, the bank may decide to deny your application. <\/p>\n\n\n\n
You can get negative information on your ChexSystems report if you:<\/p>\n\n\n\n
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Write a bad check (one that bounces because there isn\u2019t enough money in your account to cover it) <\/li>\n\n\n\n
Have an outstanding debt with a bank (for example, if you overdrew your account and didn\u2019t repay the debt) <\/li>\n\n\n\n
Give false information on a credit application <\/li>\n\n\n\n
Have had an account closed by a bank for cause (such as writing bad checks or engaging in fraudulent activity) <\/li>\n<\/ul>\n\n\n\n
What to Do If You\u2019re Listed in ChexSystems?<\/h2>\n\n\n\n
If you\u2019ve been listed in ChexSystems, it may be challenging to open a new checking or savings account. However, there are a few steps you can take to improve your chances of getting approved for an account.<\/p>\n\n\n\n
First, order a copy of your ChexSystems report and make sure that all of the information is accurate. If there are any mistakes, file a dispute with ChexSystems. It would be best if you also tried to open an account with a credit union or a bank that doesn\u2019t use ChexSystems.<\/p>\n\n\n\n
Finally, keep in mind that it may take some time to get approved for an account, so be patient and don\u2019t give up.<\/p>\n\n\n\n
How Often Can You Get a Free Copy of Your ChexSystems Report?<\/h2>\n\n\n\n
Consumers can obtain a free copy of their ChexSystems report once every 12 months. ChexSystems is a consumer reporting agency that provides information on consumers\u2019 banking history, including information on any negative actions such as bounced checks or overdrafts.<\/p>\n\n\n\n
To request a free copy of your ChexSystems report, you\u2019ll need to contact ChexSystems directly and provide some personal information, such as your name, address, Social Security number, and date of birth. It\u2019s important to review your ChexSystems report periodically to make sure that the information it contains is accurate. If you spot any errors, you can file a dispute with ChexSystems to have the incorrect information removed from your report. <\/p>\n\n\n\n
How Do You Know If You Have a ChexSystems File?<\/h2>\n\n\n\n
There are a few ways to find out if you have a ChexSystems file. You can request a free copy of your report from ChexSystems, or you can ask the bank if they use ChexSystems when you apply for an account. If you are denied an account, the bank is required to provide you with notice that ChexSystems was used in the decision.<\/p>\n\n\n\n
How to use this report?<\/h2>\n\n\n\n
Your ChexSystems report is an essential tool that can help you understand your financial history and make informed choices about your future. Here\u2019s how to use it:<\/p>\n\n\n\n
First, check for any errors or negative information that may be inaccurate. If you find anything that doesn\u2019t look right, dispute it with ChexSystems.<\/p>\n\n\n\n
Next, take a look at your account balances and transactions over time. This will give you a good idea of your spending patterns and whether you\u2019re generally able to keep up with your bills.<\/p>\n\n\n\n
Finally, focus on the positive information in your report. This may include things like on-time payments and low account balances. Use this positive information to help you make decisions about applying for new credit products or increasing your credit limits.<\/p>\n\n\n\n
How to dispute the information in your report?<\/h2>\n\n\n\n
If you have been reported to ChexSystems, it is essential to dispute any inaccurate or outdated information in your report. You can do this by contacting ChexSystems directly and providing supporting documentation.<\/p>\n\n\n\n
In most cases, ChexSystems will investigate your dispute and remove any incorrect information from your report. However, if you are still having difficulty securing a new account, you may need to contact a consumer law attorney for help.<\/p>\n\n\n\n
How long do you stay on ChexSystems?<\/h2>\n\n\n\n
ChexSystems is a database that financial institutions use to track negative account information. This information includes things like overdrafts, bounced checks, and unpaid fees. Financial institutions report this information to ChexSystems, and it can stay on your record for up to five years. However, the length of time it remains on ChexSystems may vary depending on the severity of the offense.<\/p>\n\n\n\n
Are credit reports part of the review process?<\/h2>\n\n\n\n
When you apply for a new bank account, the bank will likely review your ChexSystems report. This report includes information on your past banking history, including any bounced checks or overdraft fees. The bank will use this information to decide whether or not to approve your application.<\/p>\n\n\n\n
However, your credit report is not part of the ChexSystems review process. The two reports are separate and serve different purposes. Your credit report is a record of your financial history, including any outstanding debts or late payments.<\/p>\n\n\n\n
The bank will not review your credit report when considering your application for a new account. However, if you have a poor credit history, it may make it more difficult to get approved for an account.<\/p>\n\n\n\n
Does a ChexSystems Report Affect Your Credit Score?<\/h2>\n\n\n\n
No, a ChexSystems report does not affect your credit score. However, if you have a negative item on your ChexSystems report, it may make it more challenging to get approved for new credit products. For example, if you apply for a new credit card and are denied, the credit card company may tell you that your ChexSystems report was a factor in the decision.<\/p>\n\n\n\n
What Rights Do I Have When Dealing With ChexSystems?<\/h2>\n\n\n\n
If you have been denied a checking account because of information in your ChexSystems report, you have certain rights under the Fair Credit Reporting Act (FCRA). ChexSystems is a consumer reporting agency that keeps track of negative information related to checking and savings accounts, such as bounced checks and account closures. Consumers who have been reported to ChexSystems may find it difficult to open a new account.<\/p>\n\n\n\n
Under the FCRA, you have the right to obtain a free copy of your ChexSystems report from the agency. You also have the right to dispute any inaccurate or incomplete information in your report. If you prevail in your dispute, the FCRA requires ChexSystems to delete incorrect information from your report. Finally, the FCRA gives you the right to opt-out of certain types of pre-screened offers for credit and insurance. If you opt-out, companies will not be able to use your ChexSystems report when making these types of offers.<\/p>\n\n\n\n
If you believe that ChexSystems has violated your rights under the FCRA, you may file a complaint with the Consumer Financial Protection Bureau (CFPB). You can also file a lawsuit against ChexSystems in federal court.<\/p>\n\n\n\n
Can ChexSystems Help Victims of Identity Theft?<\/h2>\n\n\n\n
Identity theft victims may find themselves with negative marks on their ChexSystems report, which can make it difficult to open a new bank account. In some cases, a victim\u2019s entire financial history may be wiped out by the identity thief. Fortunately, ChexSystems offers a few options for victims of identity theft.<\/p>\n\n\n\n
First, victims can file a police report and provide ChexSystems with a copy. This will help to distinguish between legitimate and fraudulent activity on the account.<\/p>\n\n\n\n
Victims can also place a fraud alert on their report, which will notify banks and other financial institutions to take extra precautions when handling the account.<\/p>\n\n\n\n
Finally, victims can request a free copy of their report to check for accuracy. By taking these steps, identity theft victims can help protect their financial future<\/p>\n\n\n\n
What Is ChexSystems?<\/h2>\n\n\n\n
ChexSystems Inc. (commonly referred to as ChexSystems) is a consumer reporting agency that tracks people\u2019s banking histories. Financial institutions report information about customers to ChexSystems, and then ChexSystems compiles and reports that information back to financial institutions for a fee. Banks rely on this information <\/p>\n\n\n\n
to screen prospective clients and, theoretically, to prevent account fraud. ChexSystems is governed by the Fair Credit Reporting Act and shares similarities with credit reporting agencies like Equifax and Transunion. However, unlike traditional credit reporting agencies, ChexSystems reports mostly negative information, such as involuntary<\/p>\n\n\n\n
account closures. An estimated 80 percent of all banks and credit unions use ChexSystems or other consumer reporting agencies such as Early Warning Services to decide whether to allow a customer to open a checking or savings account.vii Reports compiled by ChexSystems include information on customers\u2019 banking history: involuntary account closures and inquiries. Involuntary account closures occur when a bank or credit union forcibly closes a client\u2019s account, typically because of overdrafts or other \u201caccount mismanagement.\u201d Generally, records of account closures remain on a report for five years.viii Involuntary account closures are reported in ChexSystems either as closures for (1) account abuse or (2) suspected frauded depending on the severity of the action and the account holder\u2019s motivation. Banks have discretion to select the reason for account closure, and distinctions aren\u2019t clear (this issue is discussed in greater depth below). However, based on conversations with ChexSystems and financial institutions, the following rough definitions emerged:<\/p>\n\n\n\n
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Account Abuse typically involves account mismanagement and unpaid debt on an account without intention on the consumer\u2019s part to misuse the account for financial or personal gain. Bank policies vary, but a record for account abuse will typically result in a <\/p>\n<\/blockquote>\n\n\n\n
consumer being unable to open a new account for five years unless they pay their debt.<\/p>\n\n\n\n
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Suspected Fraud typically involves suspicion of intentional misuse of an account for financial or personal gain. Since it is deemed more severe, a record for suspected fraud typically results in consumers being unable to open a new account for five years regardless of whether the debt is repaid. The second component of a ChexSystems report is inquiries. Inquiries signify that a consumer has applied for a financial product, like a bank account or payday loan, though they do not represent actual use of the product. Like account closures, inquiries are separated into two categories: demand deposit account (DDA) inquiries and non-demand deposit account (non-DDA) inquiries. Demand deposit account (DDA) inquiries include details on a consumer\u2019s applications for checking or savings accounts. Non-demand deposit account (non-DDA) inquiries include details on a consumer\u2019s application for financial products outside of traditional bank accounts, such as payday loans<\/keyword>, installment loans, auto title loans, and more. The following figure outlines the components of a ChexSystems report.<\/p>\n<\/blockquote>\n\n\n\n<\/figure>\n\n\n\n
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Key Issues Identified With Chexsystems<\/h2>\n\n\n\n
While individual banks and credit unions utilize ChexSystems in a way they consider to be neutral to prevent fraud and manage risk, OFE\u2019s research revealed systemic issues in both ChexSystems\u2019 design and implementation, resulting in significant confusion and unfairness and ultimately undue exclusion for low-income consumers, and in particular Black consumers. The four main problems uncovered through our research and interview process include:<\/p>\n\n\n\n
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Unclear, Unfair and Unequal Treatment – individuals do not understand why they have a record and banks choose to close accounts and categorize those closures in an arbitrary, unfair, and unequal manner Ambiguous Impact of Inquiries \u2013 inquiries should not count against consumers and prevent consumers from opening accounts, but they appear to <\/p>\n<\/blockquote>\n\n\n\n
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Impossible Resolution \u2013 it is nearly impossible for a consumer to resolve a ChexSystems record via a dispute and resolution via debt repayment varies from bank-to-bank with limited information available to consumers Individual Impacts, Systemic Exclusion \u2013 ChexSystems records worsen individuals\u2019 financial vulnerabilities and have a disproportionate impact on Black consumers The impacts of ChexSystems records are tangible, devastating, and widespread in San Francisco and across the country. Individuals are faced with unintelligible and unfair outcomes and are unable to escape the system. Taken together, these individual cases result in a system that is mostly unknown, indecipherable, and inequitable, and results in systemic exclusion from the financial mainstream for the clients OFE is most dedicated to serving.<\/p>\n<\/blockquote>\n\n\n\n
Unclear, Unfair and Unequal Treatment<\/h3>\n\n\n\n
ChexSystems is utilized within an almost completely opaque system, which allows banks to report and categorize involuntary account closures in arbitrary, unfair, and unequal ways. In most instances, individuals do not understand that they have a ChexSystems record or the reason <\/p>\n\n\n\n
behind that record. Banks are afforded almost complete discretion regarding involuntary account closures, including the rationale for the closure and the type of closure reported to ChexSystems. This discretion results in unfair outcomes, where unwitting and good faith activity can be considered<\/p>\n\n\n\n
and reported as suspected fraud or account abuse. Additionally, lack of definitional clarity results in unequal outcomes, where similar activity can be categorized as either suspected fraud or account abuse, and financial institutions may use the debt owed as a proxy for severity of the offense.<\/p>\n\n\n\n
Unclear Records \u2013 People do not know they have ChexSystems records<\/h3>\n\n\n\n
A primary issue OFE uncovered with ChexSystems records is that there is little-to-no consumer understanding or awareness of the system or its implications. While 25 percent of financial coaching clients whose records were reviewed had an involuntary account closure reported to ChexSystems, very few of these clients knew about this record or understood how it could impact them in the future. Once people learned about the record from a financial coach, most were still not clear about the exact activity that resulted in the account closure and ChexSystems record.<\/p>\n\n\n\n
Unfair Treatment \u2013 Good faith activity can result in ChexSystems records<\/p>\n\n\n\n
Though ChexSystems records ostensibly are used to prevent fraud and root out malicious consumers, the majority of records result from repeated overdrafts or other unwitting or good faith behavior. OFE\u2019s research found numerous clients who had their accounts closed due to repeated overdrafts or because they were victims of fraud or even because of bank error. Most ChexSystems records result due to overdraft or non-sufficient fund transactions \u2013 which occur when a consumer does not have enough money in their account to cover a transaction, but the bank processes it anyway, leading to a negative account<\/p>\n\n\n\n
balance \u2013 rather than fraudulent behavior. One 2008 study found that 97.5 percent of account closures reported to ChexSystems were due to overdrafts.ix Overdraft practices are highly profitable to banks \u2013 with banks earning an estimated $11 billion in overdraft fees in 2019x \u2013 and banks\u2019 own practices and account structures can contribute to the prevalence of repeated overdrafts and involuntary account closures. Closures triggered by overdraft are often the result of outstanding unpaid debt that consists mostly of fees, which dwarf the actual amounts withdrawn and represent profit rather than loss recovery for banks.xi Though a comprehensive discussion of overdraft is beyond the scope of this report, there are numerous issues with the overdraft system: banks pressure consumers to open accounts with overdraft enabled and then impose high fees; banks re-order transactions from high-to-low to maximize fees (a practice now banned for banks regulated by the FDIC). Overdraft fees and resulting account closures can be devastating for clients, but they are also entirely preventable and within banks\u2019 control. Many accounts, such as Bank Oncertified accounts, simply do not permit negative balances.<\/p>\n\n\n\n
For example, a client in a bank had his account closed due to suspected fraud after a bank error. Ironically, this \u2018suspected fraud\u2019 label technically fits, because though he was completely absolved, the bank at one point incorrectly believed he had committed fraud. This inaccuracy is particularly <\/p>\n\n\n\n
galling because a label of suspected fraud implies the presence of criminal activity, whereas banks do only limited (if any) due diligence to investigate and confirm the suspected fraud before reporting it to ChexSystems.<\/p>\n\n\n\n
Unequal Treatment \u2013 Similar activity results in different labels and outcomes<\/h3>\n\n\n\n
Unlike the three national credit reporting agencies (Equifax, Transunion, and Experian) which use relatively standard definitions for credit issued, monthly payments and debt in delinquency, ChexSystems lacks clear definitions for \u201csuspected fraud\u201d and \u201caccount abuse.\u201d The system offers limited guidance for how financial institutions should delineate between the two when categorizing the reason for an involuntary account closure <\/p>\n\n\n\n
though interviews with stakeholders, including ChexSystems itself, indicated that the difference arises based on the accountholder\u2019s motivations and intentionality. This lack of clarity provides banking institutions and even individual bank branches with nearly unfettered discretion in how to define and apply these terms, leading to opaque internal practices and industry-wide inconsistencies. For example, through interviews, OFE found that similar or even identical customer banking activity can be categorized in different ways, depending<\/p>\n\n\n\n
on the financial institution involved. In the stories below, two clients unknowingly deposited bad checks and withdrew the funds before the checks cleared. Both were victims of fraud. However, one incident was labeled suspected fraud and the other was labeled account abuse. This inconsistency is particularly troubling given that closures for suspected fraud have harsher implications than those for account abuse.<\/p>\n\n\n\n
Without clear definitions, institutions may use irrelevant proxies, such as debt owed to the institution, rather than the type of activity or motivation behind the activity to delineate between suspected fraud and account abuse. One financial coach with over ten years\u2019 experience in the financial services industry noted that, in their experience, once a client\u2019s debt to a financial institution exceeds approximately $400 the<\/p>\n\n\n\n
account closure is typically labelled as suspected fraud rather than account abuse. OFE\u2019s limited review of clients\u2019 ChexSystems records corroborates this coach\u2019s experience. Nine of the 11 clients flagged for account abuse owed debt of $400 or less and all 11 owed debt under $600. In contrast, in accounts flagged for suspected fraud, five out of the seven owed debt greater than $400. There is no reason that the determination of suspected fraud should hinge on the dollar value of the transaction. An individual could owe $4,000 to a bank or credit union in good faith if they were the victim of fraud or could purposefully and intentionally defraud a bank of $40. Using a debt threshold to define suspected fraud is fundamentally inaccurate and will necessarily result in inconsistent and unequal results.<\/p>\n\n\n\n
Offering Safe, Overdraft-Free Accounts Should Eliminate Need to Use ChexSystems<\/h3>\n\n\n\n
In addition to this unclear, unfair and unequal treatment, there are certain situations where ChexSystems is simply unnecessary. Financial institutions assert that they use ChexSystems and other account screening agencies in order to mitigate risk of fraud and loss. However, many banks and credit unions currently offer Bank On certified accounts that meet national standards for safety and affordability. These accounts are overdraft free, meaning that they limit the occurrence of any negative balances. This not only protects account holders from overdraft fees but also protects financial institutions from financial losses. Financial institutions should not be creating unnecessary barriers where their own financial risk has already been hugely mitigated, if not eliminated.<\/p>\n\n\n\n
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