Has a bank refused your request to open a bank account? If so, the reason may have been ChexSystems – a system that banks use to help determine who should be able to open an account. It’s important for all consumers to understand how ChexSystems works so they can protect their rights.
What is ChexSystems?
Although there are some differences, ChexSystems works much like the credit bureaus Equifax, Experian and TransUnion. A bank can report an individual to ChexSystems for various reasons discussed below, and other banks use ChexSystems reports to help decide who gets approved for a bank account. ChexSystems does not make any decisions regarding whether or not an account is open for you. That choice depends solely upon the bank that you decide to work with, and not all banks use ChexSystems when determining whether or not they’ll open an account.
ChexSystems is a consumer reporting agency, and as such it is governed by the Federal Credit Reporting Act (FCRA) and other laws enforced by the Federal Trade Commission. This means that you have access to your ChexSystems report in much the same manner as you have access to your credit reports from the three major credit bureaus: a free report each year and a free report if you were denied a bank account in the last sixty days. The easiest way to access your report is to order it directly from the ChexSystems website itself. Also, the law provides that if a ChexSystems report contains inaccurate information, you can dispute it in much the same way that you can dispute inaccuracies on your credit report. You may also request that ChexSystems place a statement on your ChexSystems report for any negative item listed. You can use this statement to explain any particular circumstances surrounding the negative mark. More information about how to dispute an item on your ChexSystems report can be found here.
How Does ChexSystems Work?
ChexSystems works by keeping track of individuals who have “mishandled” their accounts. Information that banks report to ChexSystems includes:
- Overdrafts, whether from ATMs, automatic payments, or checks
- Multiple overdrafts in a short amount of time
- False information provided on the account
- Nonpayment or insufficient funds
- Any type of fraud
- Violation of any banking rules and regulations
- Closure for cause (when a bank closes an account for one of the above or other reasons)
This is by no means an exhaustive list; a bank may enter negative information for an individual on the database for reasons other than what is listed here. Each bank has its own standards for what sort of negative activity it decides to report, but typically if someone’s account is closed for cause ( for one of the above reasons) that individual will have a negative mark on her ChexSystems report. Each mark of negative activity stays in the database for five years.
More You Should Know About ChexSystems
It’s important to understand banks can report individuals to ChexSystems even if those individuals do not owe the bank money. Additionally, if a bank is unable to collect on an overdraft and reports that to ChexSystems, the bank does not have to remove the negative mark even if the individual subsequently pays the money he owes to the bank. While ChexSystems will update the fact that the overdraft was paid, they will not remove the record from their system until after the five-year period, unless there is evidence that the account was listed improperly (i.e. the account is not yours, or was created fraudulently as a result of identity theft).
Many banks who participate in the ChexSystems program will not open a bank account for an individual who has one or more incidents listed on his or her ChexSystems report. Each bank has different criteria for denying someone a bank account based on negative ChexSystems information. Again, if you are denied a bank account due to your ChexSystems report you are entitled to a free report within 60 days of being denied.
Can I Still Get a Bank Account?
While most banks do participate in the ChexSystems program, not all banks do. It’s possible to find one of these banks that does not participate in the ChexSystems program. Some banks that use ChexSystems also offer “second chance” bank accounts to individuals with only one or two incidents on their report. You can expect that these bank accounts will have limits on the amount of money that you can withdraw and/or a minimum balance requirement. Some banks have higher ChexSystems standards than others. Bank of America, for instance, changed their ChexSystems standards and now they disregard all ChexSystems marks that are older than one year if the debt has been repaid to the bank. If you have a steady income, you may be able to get a bank account at a bank or credit union if you are willing to sign up for direct deposit of your check. By having direct deposit, the bank may be more willing to work with you regardless of your past ChexSystems problems.
Know Before You Go
If you think you might have a negative ChexSystems mark, make the effort to know a bank’s ChexSystems policies before attempting to open an account. Some banks check ChexSystems reports after the account has been opened. If the report contains negative information, they will close the account and refund the initial deposit, usually in the form of a check. This means that an individual may not be able to access her initial deposit for some weeks.
If you can’t find a bank account that works for you, then there are some other avenues that you may be able to explore. Some companies offer prepaid debit cards, which will allow you to load your funds onto the card and use it to make payments. Essentially, these types of accounts work like a checking account without the ability to write checks. In some instances they even have online bill pay to allow you to still meet your financial obligations without a checking account. However, it’s important to read the terms and conditions to be sure that you are not being overcharged for the use of the card. Some of these prepaid debit cards can charge up to $1 or more per transaction.
The Bottom Line
The information that ChexSystems gives to banks can and will affect your ability to obtain a bank account in the future. Your best option if you’ve had an account closed due to insufficient funds in the past or a negative mark on your ChexSystems score is to be aware of the issue and to look for banks that will accept your money despite past problems.
Keeping track of your ChexSystems report should be a part of your overall credit maintenance. Just as you keep track of what the three major credit bureaus have listed on your credit report your ChexSystems report should also be examined for any errors regularly. Doing so can save you a lot of hassle if you ever need to open additional bank accounts in the future.
Before sending these letters, please carefully read the following ChexSystem tutorials: