ChexSystem or Non-ChexSystem Bank Accounts

Posted on 01. Dec, 2009 by Stuart in Banks & Financial Institutions

Most American banks and credit unions are part of the eFunds’ ChexSystem network, which is an industry-wide umbrella system of verifying, cross-checking and sharing data concerning customers with a bad bank account history. When a customer has engaged in “inapproprite activity” – including Non-Sufficient Funds (NSF), negative balances, ATM abuse, fraud or suspected criminal activity – the customer is “flagged” on a ChexSystem list. The ChexSystem network includes more than 9,000 banks and more than 100,000 branches for a grand total of 80% of United States banks and credit unions.

ChexSystem is used by banks and credit unions for reporting incidents when bank accounts were closed for “cause”, which means that there were indications of inappropriate activity in the account. ChexSystem has also become involved in collections of outstanding balances owed on bank accounts. Other credit reporting agencies – like ones that use the Fair Isaac Corporation (FICO) score – include both positive and negative actions. The ChexSystem list is a purely negative consumer credit report for measuring credit “risk”.

Debt and credit cycles ebb and flow like ocean tides, depending upon massively complex structures of supply and demand. In decades past, the United States has had an increased supply of money that led to an increased availability of credit. Gradually, banks have started to tighten credit requirements and more carefully tracking creditworthiness of customers. Customers remain on the ChexSystem report for five years; an estimated 8 million people are on the ChexSystem list.

ChexSystem is regulated by the Federal Trade Commission (FTC) under the Fair Credit Reporting Act (FCRA) and Fair Debt Collection Practices Act (FDCPA), which guarantee that customers receive one free copy of the ChexSystem credit report each year. This report lists many items including returned checks, checks ordered, social security number validation and applications for new bank accounts. Denial for a ChexSystem bank account is listed as an inquiry – too many inquiries lead to “flagging” bank accounts for suspicious activity. To avoid this problem, consumers should seek pre-approval for bank accounts rather than waste time with numerous wasteful inquiries.

Customers should reconcile their checkbooks every month, keep track of how much is in the account and clear all checks before closing accounts in order to stay off the ChexSystem report.

People who have been placed on the ChexSystem list erroneously, should request a free report. Contact the ChexSystem Consumer Relations Department through their customer service number. You have the right to dispute your record and request removal.

Unfortunately, even after you repay the bank or file for bankruptcy, banks are not obligated to remove your name from the negative ChexSystem report.

Many banks use ChexSystem to reject people applying for new bank accounts due to a history of mishandling bank accounts. Some ChexSystem banks will offer you a high-risk account, pre-paid credit cards and reduced services.

The banking system continues to address problems in its credit risk reporting system. Now is a good time to consider Non-ChexSystem bank accounts if you have had some troubles with ChexSystem bank accounts.

Non-ChexSystem bank accounts are available from more customer-friendly banks who realize that access to financial instruments has become essential to a healthy economy. They use their own criteria to measure credit risk and can “override” negative items for customers who remain financially sound. They will open bank accounts for people on ChexSystem who are still responsible with credit.

The Internet has increased the availability of online applications offering numerous alternatives for Non-ChexSystem banks. There are more financial instruments that are not even from banks. Find a good Non-ChexSystem bank if you have had problems with ChexSystem.

Photo source: epicharmus

Tags: banking, cash, Chex