ChexSystems: 'Big Brother'
of banking is watching
Too many traffic
tickets and you'll lose your driver's license. Too many wrecks and your insurance
company will drop you like a hot potato.
same is true of your checking account. Too many overdrafts and your bank may close
your account "with cause," meaning you just crossed over from valued
customer to liability.
it gets worse.
If your bank or credit
union belongs to the ChexSystems
network, as roughly 80 percent of the nation's financial institutions do, a record
of that account closure will be promptly entered into the ChexSystems database,
where it will remain for five years, warning banks, lenders and even potential
employers that you could be a credit risk.
You may never hear the name ChexSystems
until you try to open a checking account elsewhere and are turned down. Again.
And again. And again. At which point this altogether unassuming consumer-reporting
company can seem like the Devil incarnate, out to ruin your credit rating, your
reputation, even your life.
"It can haunt you for years,"
says Steve Rhode, money coach and founder of Myvesta.
"On the one hand, it does serve a very good, legitimate service
in that it's supposed to be a record-keeping system of exactly how
responsible you are with bank transactions. On the other hand, you
can find yourself on the database and when you go to the grocery
store they won't honor your check."
can you save yourself from five years in financial purgatory?
now a way, even if you ended up in ChexSystems by your own hand.
first, let's meet ChexSystems. After all, better the Devil you know than the Devil
An unlikely villain
The uproar over what is perceived as its autocratic, Draconian policies
has inspired grass roots movements on the Web at sites such as PassChecking.com,
whose goal is to help consumers work around the hold of ChexSystems.
to ChexSystems tend to fall into two camps: those who ended up on the database
legitimately but feel their five-year sentence is too stiff, and those who erroneously
found their way onto the ChexSystems list and had a whale of a time getting off
Marty Romain, VP of Risk Products,
Payment Account Solutions at Efunds,
fields most of the media heat. In January 2001, Deluxe
Corp., a major check printer, spun off Efunds, its transaction-oriented
business that includes ChexSystems, the SCAN check verification
network and DebitBureau, which combines bank-fed and merchant-fed
databases into an extensive risk-management system.
Romain explains that, as a consumer-reporting
agency, ChexSystems compiles the facts on closed-for-cause accounts
from some 80,000 bank and credit union locations nationwide and
makes this data available to its members. ChexSystems is regulated
by the Fair
Credit Reporting Act in much the same manner as credit bureaus.
Banks rely on ChexSystems primarily
to help them screen applicants for new accounts, especially checking accounts.
Checking accounts don't generate much money for banks; many offer them free in
hopes of enticing you to invest in more lucrative products.
But issued indiscriminately, checking
accounts can expose the bank to considerable fraud and eat into
profitability. According to a 2005 report by ChexSystems, financial
institutions lost $30 billion to bad checks in 2004.
past account problems are considered a key predictor of potential risk, many (though
not all) member banks will deny an account based on a ChexSystems report.
these scenarios, the customer frequently considers ChexSystems the bad guy even
though it has nothing to do with any decision a financial institution might make
based on information in its database.
"The data that is stored within
ChexSystems is factual, accurate data; it's what happened. Now,
how the bank uses that information is completely at their discretion,"
says Romain. "Just because there is an account closure on file
in ChexSystems is not an automatic decline at every bank. Each financial
institution sets its own parameters."
for the Devil
So why is everybody yelling at ChexSystems?
reasons: it seems egregious that a few overdrafts theoretically could land you
on a blacklist for five years, and once on that list, it can be nearly impossible
to get off it.
Here again, both problems
reside primarily with the banks, not ChexSystems. The bank decided to close your
account based on its own policies and procedures, not ChexSystems'. It and other
banks are perfectly free to give you a second chance. And although ChexSystems
asks its members to remove inaccurate entries and note when an outstanding debt
has been paid, banks are under no obligation to show you this small kindness.
ChexSystems for preventing you from obtaining a checking account is a bit like
blaming the TV weatherman for the weather; they just report it, and are rightly
focused on maintaining the integrity of the information.
If you happened upon its list by
error, ChexSystems will help you square things with your bank and
remove you from the database. Contact ChexSystems via the Web
or call their toll-free number: 1-800-428-9623 to order your consumer
Early parole from purgatory
Those who wound up on ChexSystems' database legitimately once had
limited options. The company allows you to insert an explanatory
note to explain extenuating circumstances, but it won't delete or
alter a factual listing unless instructed to do so by the closing
bank. Otherwise, you could hunt for a non-ChexSystems bank at PassChecking.com,
try your luck with an online bank or have friends or relatives cash
your checks for you -- meager options indeed.
times have changed in the banking industry. Today, banks compete for your business.
They don't want to turn you down, but neither do they want to entrust a low-margin
product to a high-risk consumer.
To help its member financial institutions
resolve this dilemma, and to take a little heat off themselves,
ChexSystems joined with consumer advocates, credit counselors, University
of Wisconsin-Milwauke and University of Wisconsin Extension that
developed a program called Get
Checking. The goal: Give those on its blacklist an opportunity
for early parole from purgatory by enabling them to earn
back their checking account.
"If a consumer is on our closure
database, they can go to a class, and if they successfully complete
that class and pay off all outstanding debts to the financial institution
where the account was originally closed, then they are able, through
the participating bank or credit union, to open up a new account
and basically have a second chance," says Romain.
The national program has rolled
out in 19 states so far. It will be some relief to ChexSystems when
it can offer an alternative to its five-year mandatory sentence
for folks who just plain made a mistake.
Jay MacDonald is
a contributing editor based in Florida.