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Silicon Valley Bank Is Shut Down - Second Largest Bank Failure in HistoryAccount Application Rejection Due to ChexSystems' FraudFinder
A reader emailed me about problems he had when he was trying to open a new deposit account. The bank rejected his application not because of the basic ChexSystems report, but because of potential issues identified by FraudFinder.
This was the first time I've heard of FraudFinder. I did some research into FraudFinder, and I still don't know all the details. According this page at FIS, FraudFinder is provided by ChexSystems and provides financial institutions a tool to protect themselves from "identity manipulation and fraud." It appears to be one of many products that banks can purchase from ChexSystems.
You have probably heard of ChexSystems. We did a review of ChexSystems back in 2010. ChexSystems operates as a subsidiary of Fidelity National Information Services, Inc (FIS). According to the ChexSystems website:
Chex Systems, Inc. provides account verification services to its financial institution members to aid them in identifying account applicants who may have a history of account mishandling (for example, people whose accounts were overdrawn and then closed by them or their bank).
Ideally, you only have to worry about ChexSystems if you have a history of mishandling your bank accounts. However, responsible savers have been denied bank accounts due to mistakes in ChexSystems, or as in the case of this reader, a problem with the FraudFinder product.
ChexSystems is a consumer-reporting agency governed by the federal Fair Credit Reporting Act (FCRA). Consequently, consumers have some rights. One of those is the right to get a free copy of your report every 12 months. The Consumers Financial Protection Bureau (CFPB) recently reported this, and listed 40 of these specialty consumer reporting companies that must give you an easy way to get a free copy of your report every 12 months. ChexSystems is one of those 40, and you can request your free report at ConsumerDebit.com. The report is also free to anyone if ordered within 60 days of a bank account denial.
As the reader found out, your ChexSystems report may not be good enough to find out why your bank account application was rejected. Below are excerpts of the email that he sent me:
First, ChexSystems was reporting our address as non-residential. We live in an apartment community that was recently built on a site that was previously a commercial zoned property. However, the redevelopment occurred several years ago and we have been at the same address for over 2 years.
[...]
there were several comments listed under their FraudFinder detail. One comment listed a business that I later discovered used to be at our address when it was a commercial property.
[...]
Another item that was showing up under their FraudFinder product was that my social security number was issued at age 30, which apparently they feel was cause for concern. I immigrated to the US at age 30 so that is when I first obtained a SS #. So while they are reporting is correct it has a perfectly valid explanation.
Due to this information on the report the bank refused to open the account or add me as joint owner. The bank also provided us with a copy of the entire report. At first we suspected some sort of identity theft. That day we both ordered copies of our credit reports. Fortunately there were no problems. We also ordered our ChexSystems consumer reports because we suspected that we would not receive the same information that our bank was getting.
As we thought, when we received our reports they showed none of the potentially negative information they were reporting under their FraudFinder product.
[...]
I then sent them a letter to address the problems and ask them to either substantiate the information or remove it. Their reply was that they had not provided this information in the form of a report but rather it is a service they provide. The response didn’t say much else other than that it was the bank who made incorrect assumptions based on the information they provided. Again they provided a copy of my report which does not reflect any of this information that I am disputing.
I sent them a follow up letter, again asking them to either substantiate the information they are reporting or stop reporting it under my name. I did receive a response and they did say that they have now verified and updated our address as a residential address. They did not say if they would stop reporting that there was suspicious activity associated with the address. There probably isn’t much I can do about the social security number issue as technically it is correct. I am considering put a statement on my report as to why it was only issued when I was 30. I am also considering writing to the FTC and our state attorney general because to me it seems very difficult for the consumer to be able to get all the information is being reported about them.
I would like to thank the reader for sharing his experience. It shows how easy it is for banks to find reasons to reject your account application. It also shows that it can be difficult to find out how to get the problems resolved to avoid future rejections.
Have your bank account applications been rejected due to ChexSystems, FraudFinder or related checks? Please share your experiences in the comments.
"Their reply was that they had not provided this information in the form of a report but rather it is a service they provide."
So, ChexSystems is saying that simply because it doesn't label it as a credit report, then it is not subject to any of the regulations of credit reports, even though that is the very type of information it contains! It is completely for credit considerations! Nothing but word games -- how devious. Well, I say a rose by any other name is still a rose.
Under federal law, a credit report is not allowed to contain negative information that is more than 10 years old. (Some states make that shorter. For instance, California limits the negative information to eight years.) But here, under the negative term of "FraudFinder," decidedly labeling this as negative information, ChexSystems is knowingly disseminating such information and claims it is not a "credit report." For instance, while this reader did not give his age, I suspect that Social Security number labeled as suspicious as fraud -- decidedly being reported as negative -- was issued more than 10 years ago.
I find this alarming. I am wondering whether it would even pass legal muster -- although I have never read the pertinent laws on credit or information reporting. But it sure seems to me that this should be subject to all the same laws as any other credit report -- this is directly aimed at your credit worthiness.
The KeyBank officer said I must owe other banks money and should inquire at ChexSystems.
I have a security freeze in place but always thaw it for a couple days when I'm applying for a new account.
Since I've been rate chasing CD's based on what I read on this website, I have many inquiries on my report but no negative entries such as overdrafts or fees owed a bank.
My take on this: ChexSystems is being used as a screening tool to reduce the number of "bonus chasers" who might follow the promotional rules and walk away with the bonus.
We apply (and with FCUs that means having to send them money, and often sending more money to join some wildlife fund or such). We wait a week or two. Get accepted. Send them the money for the certificate (which they want in the dummy savings account). And then try and open the share certificate! Another couple of weeks go by, and THEN we get rejected. REASON - too many inquiries with CHEXS. [And, of course, now we have even MORE inquiries.]
Calling does no good. They say they only get a single number which is how many inquiries in the last x number of months, and that they can not make the inquiry until we try and open the CD. So a month or two have gone by - and we have to start all over again.,
Is there a solution to the basic problem? Or should I consider burying everything in a tin can in the back yard?
The problem is that these are NOT anything bad. I do NOT have 50 credit cards. This is all simply the results of all inquiries being treated the same. So trying to get a credit card, or a house loan, OR OPEN A CD are all treated exactly the same. I guess I could put all my money into a tin vault (in a bank) rather than that tin can in the back yard, and just go effectively uninsured. But when they offer a CD at 1.5%, but won't renew it for more than 0.3%, it's hard not to want to switch to another institution.