When you apply to open a checking account, there's a good chance the bank will run your name through ChexSystems because the bank wants to know if you're a check bouncer or have cheated a bank in some way.
ChexSystems is somewhat akin to the credit information bureaus. Financial institutions report individuals who "mishandle checking and savings accounts." If your name winds up in the ChexSystems database, you could find it extremely difficult to open a bank account for quite a while. A negative ChexSystems report stays in the database for five years and can doom your chance of getting a checking account for that period.
Why -- and how -- banks use ChexSystems
Financial institutions lose billions of dollars every year because of check fraud and abuse, which is why 80 percent of U.S. banks and credit unions belong to the ChexSystems network.
For all its clout, ChexSystems wields its power quietly. Many people who end up in the database don't learn of it until they try to open a checking account and are turned down. Some 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 accounts but have since learned their lesson.
In reality, bouncing a check or two isn't likely to earn you a file in ChexSystems, but if your account is closed because it's overdrawn, you'll most likely wind up there.
Tips for staying out of the ChexSystems database:
- Don't write checks without having money in the account to cover them.
- Find out from the bank or credit union how long it takes for deposits to be credited to your account.
- Keep track of your balance and reconcile your checkbook with the bank's statement as soon as you receive it, or go online and check it.
- Before closing a checking account, make sure all checks have cleared, all automatic debits have stopped and you have paid all fees.
If you are reported to ChexSystems and you think there's been an error, contact ChexSystems to dispute the entry.
If you've been shut out of having a checking account -- and your situation has nothing to do with fraud -- you may be able to take a remedial class of sorts and get a new checking account in less than five years.
A program called Get Checking is a one-day, six-hour class checking-account school where check bouncers learn the basics of owning a checking account and managing financial responsibility. People who pass the test at the end of the course are able to open a checking account at a participating bank.
Get Checking classes are usually run by consumer credit counseling agencies and university extension programs. The registration fee varies around the country, but expect to pay somewhere in the range of $35 to $50. If you owe money to a financial institution due to bounced checks, you'll have to show proof that it's been repaid before you can get your certificate.