Getting tossed into rubber-check limbo

In the global village, an agency called ChexSystems is the town gossip -- usually correct, often loathed, and indispensable.

Like the town gossip, ChexSystems is slow to forget your past and eager to expose your foibles. It whispers into the ears of new-account managers at banks and credit unions. It tells them whether you have written bad checks or cheated a bank.

 

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And if ChexSystems has something bad to say about you, many banks and credit unions won't touch you -- for five years.

ChexSystems keeps track of checking and savings accounts that are closed "for cause" -- because the account-holder wrote too many hot checks or didn't pay overdraft fees, for example.

Minor mistake, major consequences
Sometimes it doesn't take much to land on ChexSystems' list of naughty account-holders. A vocal critic of the agency says his former bank reported him to ChexSystems after an insurance company automatically debited $60 from a closed account. On the other end of the spectrum, ChexSystems alerts a bank when an account applicant furnishes a phony Social Security number or when the applicant has a history of fraudulent check-kiting schemes.

Critics complain that financial institutions use ChexSystems indiscriminately, weeding out not only checking-account applicants who intend to commit fraud, but also law-abiding people who wrote a bad check or two by mistake, or who were irresponsible with their checking accounts but have since learned their lesson. They want Congress to specify which offenses merit reporting to the agency.

A negative ChexSystems report stays in the database for five years and can doom your chances of getting a checking account for that period. ChexSystems has records of 19 million accounts closed for cause. That's one record of a closed account for every 14 U.S. residents.

Eighty percent of U.S. banks and credit unions belong to the ChexSystems network, which testifies to the agency's importance in preventing fraud and losses to hot-check writers. Financial institutions lose $15 billion a year because of check fraud and abuse, according to ChexSystems. The agency estimates that every dollar spent on fraud protection saves $6 in administrative costs, a savings of hundreds of millions of dollars a year.

ChexSystems is owned by Deluxe Corp., which is best-known for its check-printing business. Deluxe also runs a collection agency for banks and offers software and services to support Internet banking and electronic funds transfers. Deluxe offers a family of products to protect financial institutions from fraud and loss, including ChexSystems.

Speaking softly, carrying a big stick
For all its clout, ChexSystems wields its power quietly. Many people who ended up in its database never heard of it until they tried to open a checking account and were turned down because of their ChexSystems file. Most have much difficulty finding a bank that will let them open an account because someone with a ChexSystems file is considered more likely to be a fraud risk.

Traci Green, 25, of Fremont, Calif., questions the fairness of the file hanging around for five years like a stale but juicy rumor.

"My life has been a living hell because of ChexSystems," she says, although she acknowledges that she shares the blame: "The reason I am in ChexSystems is best summed up by irresponsibility of youth," she admits.

Green wrote a host of bad checks when she was 19. She says she paid her overdraft fees immediately and paid the recipients of the bounced checks. Her mother persuaded her to close the account so she wouldn't wreck her financial future. Three years later, Green tried to open a checking account. Banks rejected her based on her record of bad checks on file with ChexSystems.

Green believes that ChexSystems performs a valuable function by protecting banks from the unscrupulous, but she is angry at the agency for keeping files on people for half a decade after making honest mistakes.

"I do think that five years is a little harsh and maybe they should shorten it to one or two years," she says.

Critic cites unresponsiveness
The anonymous founder of ChexSystems Bites, a now-defunct Web site, blames a bank for his temporary exile from the land of checking accounts, but he is still angry at ChexSystems because he says the agency is unresponsive to consumers.

The man, who asks to remain unidentified for fear that the agency would sue him, says he closed a checking account two years ago but forgot to inform an insurance company, which made quarterly debits of $60 from the account. When the insurance company debited the account shortly after it was closed, the bank paid the money and reported to ChexSystems that the man had withdrawn money from the deactivated account.

Only by making repeated calls did he persuade the bank to report to ChexSystems that he had repaid the $60 and overdraft penalties.

"I had gray hair and no fingernails after a week of this," he says.

He finally found a credit union that uses ChexSystems but welcomes applicants who don't have a lot of overdrafts and have no outstanding banking fees or fines. He opened an account there.

He says he used to get about 15 e-mails a week from the site. About half of them are from people who complain that they were added to ChexSystems' database after an automatic debit was made on a closed account or after they wrote just one bad check.

Both of these people criticize ChexSystems for what they say is a lack of accountability to consumers, although they have no kind words for their banks, either.

"I have tried contacting the bank to resolve the problem, as well as contacting ChexSystems directly, and neither one of them will return my calls or correspondence," Green says. "ChexSystems never even sent me a copy of my report as I requested. Several months have gone by since I requested the report and no reply."

She does not remember what number she called.

ChexSystems reaches out
ChexSystems has tried to bridge the gap with consumers. Since April 1999, it has created a consumer-oriented Web site that differs from its site for the banks and credit unions that are ChexSystems' customers. The consumer site contains information about how to dispute and append comments to ChexSystems files.

Lisa Nelson, director of consumer affairs and information practices for ChexSystems, says, "We have a very robust consumer relations staff that is there to answer questions about whatever information is on file." ChexSystems will even help consumers craft the wording on the brief explanations they can add to their files, she says.

They can do so by calling the agency's consumer center at 1-800-428-9623. Callers are stepped through a sophisticated voice-mail system.

The owner of the ChexSystems Bites site says it's arrogant to connect distraught consumers to a voice mail system, although he gives the company credit for recently posting the phone number on the Web. The agency's consumer-oriented Web site, he says, "is the absolute minimum they have to do to keep the lawmakers away."

Eric Green, a Phoenix resident who is no relation to Traci Green, is trying to attract lawmakers' attention to ChexSystems by posting online a petition to Congress. He wants Congress to specify which offenses merit being reported to ChexSystems. An honest error resulting in one overdraft shouldn't land a check-writer on the database, he says.

The company says the criticism is misplaced. ChexSystems does not have the power to reject applicants for accounts, Nelson says.

"Most importantly, it's the banker's decision whether to open an account," she says.

It also is the banker's decision whether to report an account-holder to ChexSystems. Eric Green's worry is that an inept or vengeful branch manager could report someone to ChexSystems for a trivial motive such as a small overdraft or even for behaving rudely toward a teller.

"If they don't like you, they can put you in there for anything," he says.

Nelson notes that you can challenge inaccurate information in your file and ask ChexSystems to insert an explanatory note if a small matter was blown out of proportion.

You can't get ChexSystems to delete accurate information, but the federal Fair Credit Reporting Act requires the agency to allow you to add a brief explanation to the file. "Make certain if there are any extenuating circumstances to put in writing what they are and get it attached to the file," Nelson advises.

Try, try again
Theoretically, at least, bank and credit union managers have the option of letting customers open accounts even if they are listed in the ChexSystems database.

You can always try to convince the new-accounts manager that your business is worth the risk. Keep in mind, though, that one of the products that ChexSystems offers is AuditCheck, which tracks cases in which managers overrode a negative report from ChexSystems and let a customer open an account anyway. With upper management peering over the new-account manager's shoulder, you might not be worth the potential hassle.

Finally, you can try to find a bank or credit union that doesn't use ChexSystems. Deluxe says 80 percent of financial institutions use ChexSystems, so ferreting out an institution that doesn't use ChexSystems can be a challenge.

Finding a "gem" of a bank
An institution that doesn't use ChexSystems is so hard to find "that it's a gem when you uncover it," says the owner of the ChexSystems Bites Web site.

Traci Green feels that she, too, found a gem. In 1998 she began looking for a bank where she could open a checking account, and she finally found one that summer: WingspanBank.com, the online subsidiary of Bank One Corp., which now operates as BankOne.com.

Bank One uses ChexSystems, and Green doesn't know if Wingspan just didn't look up her file with the agency or if her file had expired. She didn't ask because she didn't want to alert anyone to potential trouble.

"Things went well with WingspanBank," she says. "I didn't have any problems."

There is one final irony: Wingspan did not let her choose which company would print her checks.

It was Deluxe Corp., the owner of ChexSystems.