You go to open a new checking account only to be denied. What happened? You may have just been the victim of ChexSystems.
While many of us are familiar with credit reporting agencies like Experian and their all important FICO credit score, fewer of us have any clue about this equally ubiquitous consumer reporting agency.
ChexSystems manages a database of how consumers handle their banking accounts. In particular, it keeps track of account overdrafts, fraudulent checks, unpaid fees, and other suspicious banking activity. If, for example, you bounce a check, your bank can report the incident to ChexSystems which then creates a file to document all your negative banking information.
When you go to apply for another checking account, your new bank or credit union can pull this ChexSystems report and may deny you a new account based on the information it contains.
Sounds reasonable, right? A new bank wouldn’t want to take on clients who have a habit of writing bad checks.
But increasingly people with only minor offenses are being caught up in the ChexSystems web, and because negative information remains on their ChexSystems report for a minimum of five years, they go years without being able to obtain a new checking account.
This was the case for Tiffany Murrell of Brooklyn. As reported by the New York Times, Ms. Murrell was denied a checking account from a credit union based on information in her ChexSystem report:
The obstacle, it turned out, was a negative report from ChexSystems, a consumer credit reporting firm that provides customer data to virtually every major bank and credit union in the nation. The black mark stemmed from a overdraft of roughly $40 in June 2010, according to a copy of a letter that the 31-year-old Ms. Murrell later received from ChexSystems. While she repaid the amount, plus interest and fees, before applying for a new account, the incident, she says, has barred her from opening an account at nearly every bank she has tried, an experience she called “insulting and frustrating.”
Jonathan Mintz, commissioner New York City’s Department of Consumer Affairs, warns that, “hundreds of thousands of Americans are being shut out for relatively small mistakes.” Recently, New York Attorney General Eric Schneiderman initiated an investigation into the practice of banks using databases like ChexSystems to disqualify prospective customers.
Yet, bounced checks and overdrawn accounts aren’t the only things that can land you in hot water with ChexSystems. Common mistakes put people in the ChexSystems crosshairs. Many people, for instance, close a bank account but forget to stop automatic payments from being taken out of the closed account. The automatic payment attempts on the closed account trigger steep bank fees and a report to ChexSystems.
Similarly, if you attempt to close your checking account simply by letting it go to a zero balance, bank fees could accumulate once again causing you to be reported to ChexSystems.
So what do you do if you suspect your bank has reported you to ChexSystems? You are entitled to a free copy of your ChexSystems report every year. Simply visit the ChexSystems website and request your report. If you believe your file contains errors you can use their website to file a dispute of the error as well.
If ChexSystems has blacklisted you, there is some encouraging news. While over 90% of banks and credit unions in the United States use the ChexSystems database when screening new applicants, some financial institutions do not. They may, for example, pull your credit report instead. Use websites like NoChexSystemBanks to search for such financial institutions in your state.
BMWK, have you ever been blacklisted by ChexSystems?