ChexSystems is a company that maintains a subscriber membership service used in the banking industry. The members consist mainly of Banks, and Credit Unions, but can include other types of Financial Institutions.
It provides its members with what it calls deposit account verification services. The members use the information that ChexSystems provides to identify applicants that have had what they classify as a suspect banking history.
ChexSystems maintains a central database containing all of the information that has been reported to them. This information is shared among the network of member banks and credit unions to assess the level of risk in opening new accounts.
When someone applies to open a new checking account at a ChexSystems member bank, a ChexSystems inquiry is made. If the inquiry is returned stating that the person has had previous problems with another bank, that individual will often be denied from opening the account based on that ChexSystems report.
For this reason ChexSystems is considered as a Consumer Reporting Agency. This makes ChexSystems subject to the same laws as the Credit Bureaus that we are all familiar with: Experian, Equifax, and Trans Union.
And like the Credit Bureaus? ChexSystems does not approve nor decline new accounts. It only maintains, and reports, the information in their database which bank members have submitted to them. It is the individual bank who, based on the ChexSystems report, decides whether or not to approve the new account.
Understandably? the majority of people in America who have the very common checking account, and never had a problem, have never heard of ChexSystems.
But for the nearly 8 million people that ChexSystems has on file it is a very real problem. Many people feel ChexSystems has very quietly become the big brother of the banking industry.
ChexSystems is a very necessary service for banks. On average financial institutions are hit with over $1 billion in check fraud losses a year. And they spend more than $200 million to prevent, detect, and prosecute check fraud.
The criticism has been that there are no established guidelines for exactly who gets reported to ChexSystems. It is entirely up to the individual member banks.
There are no procedures to distinguish between the person who may have had one or two unintentional incidents of bank overdrafts? and the individual who truly committed a serious act of fraud like passing numerous checks on a closed account.
Depending on a particular bank’s internal policies, a person could have their account closed and reported to ChexSystems for as little as one bounced check.
Once in ChexSystems they are treated all the same, and the record can remain for 5 years.
Bank executives defend the ChexSystems database as a valuable weapon in the battle against fraud and high-risk customers. To help prevent fraud and account abuse, banks and other financial institutions rely on the information from ChexSystems. They say it helps to keep banking services affordable and widely available to the general public.
ChexSystems is also licensed as a debt collection agency. They have a separate department that assist participating members to collect on outsanding accounts. This also makes them subject to the Fair Debt Collection Practices Act (FDCPA)
While ChexSystems is the most widely used database by the banking industry, other similar systems exist, such as TeleCheck, and National Check Protection & Data Verification Services.
If you have recently been denied from opening a checking account due to a negative ChexSystems report, you are entitled to a free copy of that report.
To contact ChexSystems by mail:
Attn: Consumer Relations
7805 Hudson Road, Suite 100
Woodbury, MN 55125
or fax at 602-659-2197
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