What You Should Know About Chexsystems

If you’ve recently opened a checking account and you haven’t had any trouble, you probably haven’t heard of Chexsystems yet. However, if you should try to open a bank account at some point and your bank won’t let you, it might be because of Chexsystems.

eFunds is a company that was created in 1999 as a tool of the financial lending services sector. It in turn produced Chexsystems . eFunds developed Chexsystems to detect any fraudulent activity and to assist financial institutions with risk management analysis, in particular for individual customers.

Basically, it keeps track of and then reports on your banking activities similar to what your credit report and score does for you in terms of measuring how you are as a credit risk and in paying bills on time. Chexsystems keeps a sharp eye out for suspicious banking activity, overdrafts, insufficient funds check cashing, or an inability to meet minimum balance account requirements.

Chexsystems therefore serves two functions: as a verifier of checking activity and as a consumer credit reporting agency just like Equifax or TransUnion. And just as you’re entitled to one free credit report annually, you too can ask for a Chexsystems report once a year, free of charge. When it assumed its second function in 1999, it came under the Fair Credit Reporting Act.

As a consumer, then, you can question any information in Chexsystems, and you can also dispute entries and the evidence that supports the reported activity. Most banks and credit unions in the US use Chexsystems. If a client comes up with some negative reporting, that person may have trouble opening a checking account. Now, is Chexsystems a fair system? In fact, some critics have objected to its reporting practices, stating that the system does not report fairly, and unlike credit bureaus, which have both positive and negative information on your credit report, critics say that it only contains negative information. They claim that this in turn jeopardizes consumers’ reputations, when those consumers would otherwise be qualified to open checking accounts.

Given the mounting criticism, several banks met in 2000 and they agreed that they would re-consider their policy in approving checking account applications based on Chexsystems reports. Reforms were introduced, some of which include ignoring entries that are more than three years old as long as they are not related to fraudulent activity, disregarding Chexsystems entries that are one year old provided the consumer has settled the debt, and extending the time in which a consumer can repay the debt.

Chexsystems Report: what information is provided? We looked at a sample report and our first impression was “you can’t get more thorough than that.” The consumer’s name and address are at the top of the report. An ID number is provided along with the individual’s social security number. When writing Chexsystems, they request that you always refer to your SSS and ID numbers.

If you believe any information in the report is inaccurate, the report states that Chexsystems will investigate any discrepancies you point out. You can also send your inquiry to fax number 602-659-2197.

Next is the “reported information” box. Most of this information comes from a five year history of banking information. If there is more than one piece of reported information or transaction, the items are itemized. Each lists the source of the reported information, the individual being reported on, including Social Security number and driver’s license number and the type of activity, such as non-sufficient funds.

Following this is another box that reads, “Inquiries initiated by Consumer Action.” This means transactions that you initiate yourself. It shows your applications for a credit card or applications you made it a financial institution or bank. This information is kept on the report for up to three years.

The third section or box reports on “Inquiries not Initiated by Consumer Action”. What this means simply is that other people have asked about you. These people could be your present creditors, pre-approval creditors or potential investors who are trying to assess you as a risk.

Your Chexsystems report does not end there. There’s another box that says “Retail Information” and this category includes checks you issued to stores and other retailers which were returned. When a store receives a check that they can’t cash or deposit because of say, non-sufficient funds, they share this information with a company called Shared Check Authorization Network – (SCAN). It keeps a database of checks that are returned as well as instances of fraudulent activity. Retailers have to be SCAN members to obtain information for check authorization and verification purposes. SCAN information is used by Chexsystems, but Chexsystems does not get involved in the collection of returned checks.

If you’ve ordered any checks, this is also recorded in your Chexsystems report and it provides a history of your check orders. The next two boxes are validation activities for your driver’s licence and social security number. Your driver’s licence goes through two processes: validation and verification. Chexsystems validates your driver’s licence by matching your licence format with the state-approved format; verification involves confirming your name and place of birth.

It may do you well to think of Chexsystems before you write out your next check. You should be sure there’s enough money in the bank to cover your check and that the money is truly yours and not someone else’s. Of course, you can always pay for merchandise with a credit card or with cash.

Steven J. Talrechi has been publishing information on second chance checking for more than a decade now. Before you sign up for a second chance checking account, please come to our site for all the most up to date information.

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