What is ChexSystems?
ChexSystems works for banks and credit unions much like the credit bureaus: Equifax, Experian and TransUnion. ChexSystems helps banks decide whether or not to open a checking account for a new customer. However, there are some differences in the way they maintain and report data. ChexSystems does not make any decisions regarding whether or not an account is opened for you. That choice depends solely upon the bank that you decide to work with, and not all banks use ChexSystems when determining whether or not they’ll open an account.
ChexSystems is a consumer reporting agency, and as such, is governed by the Federal Credit Reporting Act (FCRA) and other laws enforced by the Federal Trade Commission. This means you have access to your ChexSystems report in much the same manner as you can access the credit reports from the three major credit bureaus. If you’ve had problems opening a bank account it may be wise for you to order your ChexSystems report to see what’s listed.
How to Get Your ChexSystems Report
The easiest way to get your hands on this report is to order it directly from the ChexSystems website itself. If you find inaccurate information you can dispute it in much the same way that you can dispute inaccuracies on your credit report. You may also place a statement on your ChexSystems report for any negative item is listed. You can use this statement to explain any particular circumstances surrounding why a bank account was closed, such as disputed fees or other issues.
What You Need to Know Before Opening a Bank Account
If you’ve had a bank account closed due to non-sufficient funds (NSF), excessive overdrafts (OD), or other issues, you may have problems opening another checking account at a later time. In particular, problems arise when your bank account is closed and you still owe the bank fees either for overdraft or other services. Even if you currently have funds available to open an account, most banks will refuse to establish a new account for individuals who have had these types of problems in the past. Banks rely on ChexSystems to provide information about individuals who have had problems with insufficient funds in the past. Much like you may be denied the credit card due to past credit history even if your current situation has improved, you may be denied bank account based upon your past banking history.
How Does ChexSystems Work?
ChexSystems works by keeping track of bank accounts that have been closed for particular issues. The standard term for this is accounts that were closed “for cause”. For cause can encompass any number of things including:
1. Multiple overdrafts in a short amount of time
2. False information provided on the account
3. Nonpayment of insufficient funds or overdraft
4. Abuse of a savings account, debit card, or ATM transactions
5. Any type of fraud
6. Violation of any banking rules and regulations
This is by no means an exhaustive list, and ChexSystems may include your closed bank account for another reason other than what is listed here. Each time you have an account closed for one of the reasons listed above, ChexSystems keeps track of it in their database. The information stays on file for five full years from the date the account was closed.
Problem Solved? Not Really
Even if you later pay off the overdraft you owe to the bank, the fact the account was closed with money owing will remain on record. While ChexSystems will update the fact the overdraft was paid, they will not remove the record from their system until after the five-year period, unless there is evidence the account was listed improperly (i.e. the account is not yours, or was created fraudulently as a result of identity theft).
Get the Report
Many banks who participate in the ChexSystems program will not open a bank account for an individual who has one or more incidents listed on their ChexSystems report. This is why you will have so many problems opening a new bank account if you’ve had one closed for non-sufficient funds in the past. If you’re denied a bank account due to your ChexSystems report, you are entitled to a free report within 60 days of being denied — the same as if you’ve been denied credit due to information on your credit report.
Can I Still Get a Bank Account?
While most banks do participate in the ChexSystems program, not all banks do. It’s possible to find a bank that does not participate in the ChexSystems program and open an account. Some banks that use ChexSystems also offer “second chance” bank accounts to individuals with only one or two incidents on their report. You can expect these bank accounts to have limits on the amount of money you can withdraw and/or a minimum balance requirement.
Direct Deposit May Be the Solution
If you have a steady income, you may be able to get a bank account at a bank or credit union if you are willing to sign up for direct deposit of your check. By having direct deposit, the bank may be more willing to work with you regardless of your past ChexSystems problems.
Look Before You Leap
When you’re looking to open a new bank account and you know you have problems with your ChexSystems report, it’s in your best interests to find out the bank’s policies beforehand. This is because some banks will open an account for you and check the ChexSystems report after the account has been opened. If problems are found your account will be closed, and your initial deposit will be given back to you. This means you may be without your initial deposit for some weeks as the bank usually mails a check when they close an account and don’t issue a direct refund.
If you can’t find a bank account that works for you, there are some other avenues you may be able to explore. Some companies offer prepaid debit cards, which allow you to load your funds onto the card and use it to make payments. Essentially, these types of accounts work like a checking account without the ability to write checks. In some instances they even have online bill pay to allow you to still meet your financial obligations without a checking account. However, it’s important to read the terms and conditions to be sure you aren’t being overcharged for the use of the card as some of these prepaid debit cards can charge up to $1 or more per transaction.
The Bottom Line
The bottom line is, while ChexSystems does not directly recommend whether or not you get to have a bank account, like the three credit bureaus the information provided by the ChexSystems record can and will affect your ability to obtain a bank account in the future. Your best options, if you’ve had an account closed due to non-sufficient funds in the past, is to be aware of the issue and look for banks that will accept your hard-earned money despite your past problems.
Track It Like a Credit Report
Keeping track of your ChexSystems report should be a part of your overall credit maintenance. Just as you keep track of what the three major credit bureaus have listed on your credit report, your ChexSystems report should also be examined for any errors regularly. Doing so can save you a lot of hassle if you ever need to open additional bank accounts in the future.