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Chexsystems - What You Should Know

Author: StevenJ.Talrechi
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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.

The parent company of Chexsystems is eFunds - created in 1999 to serve the financial lending services sector. Its specific mission is to detect fraudulent activity and help financial institutions in their risk management analysis, particularly for their individual customers.

Chexsystems monitors and reports on your banking activities much as credit bureaus do with regard to how reliable you are in paying your bills and managing your credit, Chexsystems looks for suspicious banking transactions, overdrafts, insufficient funds' check cashing, or the inability to meet minimum account balances.

With these functions, Chexsystems serves banks in two ways. It verifies your checking activity and also operates similar to how a credit consumer-reporting agency does. Just as with the credit reporting agencies like TransUnion, for example, you can also ask for one free report every year. It's free of charge to you just as your yearly credit report is free of charge to you. This is because it falls under the jurisdiction of the Fair Credit Reporting Act, similar to the credit reporting agencies.

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.

Because of this increase in criticism, in 2000, several banks got together and agreed to reconsider policies that affected checking account applications based on reports by Chexsystems. Some reforms were put through, including ignoring entries that are more than three years old, where those entries don't contain fraudulent activity. The reforms also disregard entries that are greater than one year old, as long as the consumer has settled the debt in question.

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.

The first thing you read on the document is that Chexsystems will look into any information or entry that you believe is incorrect or inaccurate. You can send your inquiry to fax number 602-659-2197.

After this is the "Reported Information" box. Most of this information comes from financial institutions. It is recorded in Chexsystems for five years. If there is more than one reported transaction or piece of information, items are itemized. Each item details source of the reported information, and the individual in question being reported on, including Social Security number, driver's license number, as well as the type of report done, such as non-sufficient fund's report.

The next box reads, "Inquiries Initiated by Consumer Action." This covers transactions that you made yourself. It shows what applications you have had for a credit card, or applications you made from a financial institution or bank. This information stays on the report for up to three years.

The next section is entitled, "Inquiries not Initiated by Consumer Action." This is where it's recorded if other people have asked for information on you, including pre-approval or present creditors, potential investors trying to determine what your risk level is, and so on.

Finally, there's one more box that says "retail Information," which includes checks issued to stores and other retailers that have been returned. When a store receives a check that they can't cash because there are non-sufficient funds, for example, this information is shared with the company called "Shared Check Authorization Network" or SCAN for short. It keeps a database of fraudulent activity and checks that have been returned. In order to obtain information for check authorization and verification, retailers must be SCAN members. This information is used by Chexsystems, but Chexsystems does not become involved in collecting 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.

Before you write out your next check, then, think of Chexsystems and be sure that there's enough money in the bank to cover your check and that it truly is yours and not someone else's. On the other hand, you can always pay for merchandise with a credit card or with cash.

About the Author

Steven J. Talrechi has been publishing information on second chance checking for over 10 years now. Before you sign up for a second chance checking account, please visit us for all the most current information.