What is ChexSystems?
When banks need to verify the account information of someone who is applying for a new account with them, they will consult ChexSystems, Inc. Previous banks will have reported to this agency that someone has closed an account with a negative balance; if the bank closed a checking account for this reason, for example, it will also report this to ChexSystems. The purpose of ChexSystems is to inform the banks that a particular applicant has had a history of incompetently handling money in the past. The federal Fair Credit Reporting Act governs ChexSystems to ensure that it acts in an ethical manner.
Once people have been reported to ChexSystems, their information can remain in the database for as long as five years. This means that it can be difficult to open a new account with another bank. People who discover that they are in the database can dispute negative entries if they have paid the debt they owe to their previous financial institutions; people do this by contacting ChexSystems directly.
Sometimes, people confuse ChexSystems with the credit bureaus Experian, TransUnion and Equifax. Consumers’ credit information is reported to these three bureaus. The various banking institutions will consult these bureaus in order to learn about a person’s history of paying their bills; banks will do this when people apply for Visa credit cards, for example, to help them decide whether or not to offer these applicants a credit card.
Chex Systems is not this type of agency; they are only interested in the deposit information for checking and savings accounts. A bank will not check the record of someone who has applied for something like a prepaid credit or debit card with ChexSystems. Establishments that will be interested in whether or not applicants have overdrawn their accounts, not paid off their negative balances, deposited false checks or otherwise engaged in deceptive behaviors will consult the ChexSystems database.
Applicants that have been placed in the ChexSystems database will find that they will have a harder time opening checking and savings accounts, but it will not be impossible. The bank may agree to open these accounts for people if they agree to meet certain conditions. Those who can present written proof that the negative balance has been paid will then be able to open the accounts they desire to open. If not, these people can open an account with a higher interest rate than would be charged other clients; this shifts more of the risk from the bank to the client.
Those who have been reported to ChexSystems will need to periodically review their reports to ensure that everything is accurate. Getting reports has been made possible ever since ChexSystems became classified as a consumer reporting agency. Because of this classification, consumers are entitled to obtain one free report each year like they can with the other credit bureaus. Obtaining this report will keep the consumer informed and able to do something about improving their financial situations.
A negative past does not necessarily mean that this history has to continue into the future.
