What is ChexSystems?
ChexSystems, Inc is a consumer-report agency governed by the federal Fair Credit Reporting Act enforced by the Federal Trade Commission. It exists to provide financial institutions account verification services when individuals apply for accounts. ChexSystems primarily aids banks and financial institutions in identifying applicants with a poor history handling their bank accounts, including those who had overdrawn accounts that were closed.
What Banks Check When Opening an Account
Before a bank or credit union will allow new customers to open accounts, they must first go through an application process. Banks are required to do this and must verify your name, address, date of birth, social security number and whatever else they deem pertinent and necessary. Once they have verified a new customer, they will then perform a ChexSystems review to make sure the potential patron has not been reported by another financial institution. It is also important to note that some banks go beyond the ChexSystems review and also check new customers’ credit scores before opening new accounts.
This could be of concern if they are doing what is called a hard review. When they pull your credit score they can do a soft or hard review. In a hard view request, the inquiry could cause a small credit score ding. Individuals who are concerned about this should choose a bank that does not perform a credit check in their application process. Also be aware that if the bank is going to check a credit score, they need the customer’s permission in order to do so.
Once individuals have been reported to ChexSystems, they will remain in the data base for a period of five years. Banks take ChexSystems reports very seriously, and with just one incidence on a report, it can be nearly impossible to find a bank or credit union that is willing to work with a flagged applicant. Opening just a regular checking account once you have been reported to ChexSystems may prove to be extremely difficult and many times impossible.
Disputing ChexSystems Reports
Patrons who are denied an account do have a right to recourse. First, they will need to get a copy of their ChexSystems report. The report is free to anyone if ordered within 60 days of the denial. A copy can be requested directly from ChexSystems by either calling or faxing them.
Once the report has been received, it should be looked over very carefully. If an incident shows up that the recipient believes is in error, they can contest it to be removed from their report. In order to contest the report, or any part of it, the recipient will need to, in writing, send ChexSystems a letter. The letter must state which incident is being disputed and request that the information be verified. Once ChexSystems receives the letter, they have 30 days to reply with the verification information. Always send letters of dispute by certified mail and ask for delivery confirmation. This can be used later on, if necessary, to prove the letter was received.
If the report is correct, the next step of action is to make good on any money owed. Once account balances have been paid in full, make a request to the financial institution, asking them to report to ChexSystems that the account has been paid. Sometimes it might also be possible to get the bank to remove the incident all together, but don’t count on it. It is also advisable to get a copy of the letter for your own files. Some banks will be willing to work with individuals who have paid any debts owed, and some will not.
Finding a Bank When You Have a Bad CheckSystems Report
Individuals who have been reported to ChexSystems still need to do banking, so what can they do? Five years is certainly a long time to be locked out of opening a bank account and for most people a bank account is not one of life’s luxuries. It is a true necessity. How else can individuals cash payroll checks, have their salary directly deposited, pay their bills and so much more. While options will be limited, they are not impossible to find.
The first option would be to find a bank that does not use ChexSystems. While the number of banks is limited, there are some financial institutions throughout the country that do not use or report to Chex Systems. Generally these are smaller, local banks and credit unions. It may take some searching to find one, but they are available. Using these banks though can have other downfalls. It may be harder to make deposits with limited branches, and bank owned ATMs will also most likely be in limited quantity.
Another option is to find a bank that works with individuals who have been reported to ChexSystems. With more and more people running into financial difficulty, numerous banks are coming up with special banking programs for individuals who have had trouble managing accounts in the past. These programs are typically called Second Chance Accounts or Fresh Start Accounts.
Generally, these accounts have tight restrictions that customers will have to adhere to. Deposits, withdrawals and transferring money from one account to another are allowed. A debit card is almost always given with the account, allowing the customer to make purchases and take money out of ATMs. Other privileges usually include a low starting balance with no minimum balance required. These accounts usually come with a low monthly maintenance fee. Check writing privileges, however, are almost never a perk with Second Chance accounts.
Customers who open Second Chance accounts can earn other banking privileges. As long as they keep the account in good standing in as short a time as six months depending on the institution, they may be allowed more banking privileges, and eventually their account can be converted to a regular checking account.
A final thing to note to individuals who are attempting to find a financial institution to work with them is to be selective. It can be tempting to just go from one place to another trying to find a bank that will be willing to allow the individual to open an account, but doing this can be a big mistake. Make sure before the bank pulls your ChexSystems records that they truly do work with individuals who have been reported. Every time a bank or credit union checks a report, it shows up as an inquiry on the account. If too many inquiries have been made on any one account, it is red flagged, and many banks will not work with people who have recent multiple inquiries even if no other problems exist. In essence, the person is making himself or herself look guilty.
How ChexSystems Affects Existing Accounts
Another important tip to be aware of with ChexSystems is that current bank customers are not necessarily immune to implications from ChexSystems reporting. For example, if an individual has accounts at multiple financial institutions and just one account is in bad standing, he or she could wake up to the shocking news that other banks have frozen these accounts.
Some banks and credit unions also do what is called account sweeping. They will routinely recheck patrons to see if they have been reported to ChexSystems. When they find customers who have been reported, regardless of the reason, many times they will freeze and close that customer’s accounts. They will rarely take into consideration how long the individual has been a customer or whether or not the account is in good standing.
Avoiding Negative ChexSystems Reports
The best thing anyone can do, if they want to steer clear of any difficulties with opening and keeping banking accounts, is to avoid being reported to ChexSystems. Avoiding being reported to ChexSystems is really not that difficult. While it may seem like silly advice, so many individuals do not take simple steps that are necessary to keep them out of banking trouble. Simply keeping a checkbook balanced can avoid common pitfalls. Making sure the money is in the bank before a check is written or an ATM withdrawal is made is just common sense. With online banking options available today through most financial institutions, keeping tabs on what is in your account is easier than ever.
Be careful. Many times, individuals find they are reported after they have already closed an account. Make sure that before closing any banking account that all activity is complete. Be sure all checks have cleared and that all automatic withdrawals have been stopped. If there are any fees on the account, make sure they are paid in full.
If individuals do find that they have overdrawn an account or do not have sufficient funds for an automatic payment, it is important to take action immediately. The majority of the time, banks do not report to ChexSystems with one incident. It is generally best, if at all possible, to visit your local branch. Find out what it will take to correct the issue, and do it. Many times, banks will be willing to work with customers, especially when they can see that the person is truly working to bring the account back into the positive.