Chances are you haven’t heard of ChexSystems unless you’ve been denied a checking account. ChexSystems is a consumer reporting agency that collects and aggregates your banking history. It’s similar to what credit bureaus do with your credit history.
A few months ago, I received a message in our Financial Wellness Road Warrior Facebook group. A wellness warrior shared how she’s been working on improving her finances and decided it was time to switch banks. To her surprise, the representative stated that an account couldn’t be opened and was handed a ChexSystems letter.
Her question was:
“What is ChexSystems? Does this mean I can never open a new checking account ever again?”
I’ve worked in banking for over 7 years and was familiar with ChexSystems. During my branch days, I was required to run new customer’s information through ChexSystems. The info gathered such as name, address, social security, and driver’s license was enough to complete an inquiry. Usually, the ChexSystem response was clear but sometimes I’d get a hit that disqualified the person from having an account at the bank.
We were never informed about what information was on ChexSystems. I would normally tell the customer it had something to do with their previous banking relationship. A bank or credit union reported them for excessive NSF (non-sufficient fund) activity or account abuse that resulted in a financial loss for the bank.
What Is ChexSystems?
ChexSystems is an agency that doesn’t get much attention from financial experts or publications. However, it is a nationwide consumer reporting agency that operates under the Fair Credit Reporting Act (FCRA). ChexSystems collect information about your banking habits from participating financial institutions. ChexSystems will then share that information with their clients. Financial services companies pay ChexSystems to access the information to determine risks for opening an account with a new customer.
How is ChexSystems Used by Banks and Credit Unions
Many financial institutions report your banking relationship to Chexsystems or another agency like TeleCheck. Banks and credit unions are not required to report information but many of them do. It’s their way of sharing information on potentially abusive banking relationships. The information found in your Chexsystems report may be the cause of denial to use banking services.
Banks and credit unions report information such as recent account openings, unrecovered NSF (non-sufficient funds) fees, and excessive overdraft activities.
If a financial institution has lost money due to bounced checks, unpaid fees or overdrawn accounts, they report that information to Chexsystems.
Chexsystems reports include:
|Activity||Description||When It’s Deleted|
|Involuntary Account Closure||A banking account closed “for cause” (e.g., negative balance, bad checks were written, etc)||After 5 years (unless you successfully dispute the listing or the financial institution or ChexSystems deletes the listing sooner)|
|Bounced Checks and/or Overdrafts||Abusive bounce checks and multiple occurrences|
|Unpaid Negative Balances||Outstanding overdraft or nonsufficient funds (NSF) fees or other account charges|
|Savings Account, Debit Card or ATM Abuse||For risky or dishonest behavior (i.e. depositing fake checks, empty envelopes at ATM)|
|Outstanding Checks in SCAN Database of Returned Checks & Instances of Fraud||Checks issued or sent to a collection agency; returned or fraudulent checks|
|Suspected Fraud or Identity Theft||Providing false info on an application or altering checks|
|Inquiries||Applying for new accounts that are initiated by you, a bank, an employer, a creditor, or other “permitted” party||If initiated by you: after 90 days or no more than 3 years; Otherwise after 5 years.|
|Lost Checks & Debit Cards||Financial institutions may routinely share information. It’s not specifically negative but can indicate potential fraud.||After 5 years or deletion after successfully dispute the listing or is deleted by the financial institution or ChexSystems sooner.|
|Check-Ordering History from Past 3 Years|
|Number of Accounts Applied for in Past 90 Days|
|Social Security Number/Driver’s License Validation and/or Verification|
For an example of a Chexsystems report click here and view.
Who can request your Chexsystems Report?
Chexsystems is a private company but operates under federal law. Consumer protection law is written to ensure the accuracy of your information and rights to privacy. You can request your consumer report and others with legal rights can too.
From the Chexsystems website, examples of legitimate requests include:
- According to your written instructions
- A business transaction initiated by you
- Pursuant to a court order or federal grand jury subpoena
- Your application for a license or other benefit granted by the government, when consideration of financial responsibility is required by law
- A child support determination, under certain circumstances
How is Chexsystem Important to Financial Wellness
Having negative information on Chexsystems can limit your ability to use the best banking products. It can impact your wallet.
If you’re unable to open a new checking account or get a debit card, it can easily turn into financial stress.
The unfortunate reality of a negative ChexSystems report is the inability to open new accounts from traditional financial institutions. This can make a person become “unbanked” and “underserved” by the financial services industry. In a Nerdwallet article, an unbanked person pays on average $183 just to access their money. It places a bigger burden on those who make less than $20,000 a year.
How to get your Chexsystems Report
You can request a copy of your report directly from Chexsystems once every year. It may be good practice to review your ChexSystems report annually to verify accuracy of the report. And to challenge any information that was placed in error.
Additionally, if you’ve been denied an account because of information from Chexsystems, then you have the right to request a copy of your report within 60 days. Requesting your report online or through the automated telephone systems states reports will be sent within 5 days.
Once you get your ChexSystems report, review the information found in the pages, and dispute Chexsystem report inaccuracies and errors through the online system or by sending a dispute letter.
How to avoid negative information reporting to Chexsystems
- Communicate with your banking relationships. Explain your situations and if necessary agree to a plan to pay off outstanding charges and fees related to checking accounts and debit card usage.
- Have an account overdraft plan. Connect your checking account with a savings account or line of credit. Gain peace of mind knowing your written checks and automatic payments are covered to avoid overdraft fees.
- Ensure automatic withdrawals from closed accounts are switched. Once you’ve closed out an account make sure any automatic withdrawals are changed. Review statements for a year to identify monthly, quarterly, or annual withdrawals that are done automatically.
- Review your Chexsystems report once every 12 months. Don’t wait until you’ve been denied a new checking account. Review your report and ensure information is accurate and help prevent identity theft too.
One last thing, not every financial institution uses Chexsystems in their decision-making. Many do and you can inquire before you complete an application. Remember, financial institutions can use other consumer reports like credit reports in their decision making.