What is Chexsystems ?
Steven J. Talrechi
If you've managed to open checking accounts so far without any trouble, chances are you have not heard of Chexsystems. However, if one day your bank refuses your application to open a checking account, then it's probably because of Chexsystems.
eFunds is the parent company of Chexsystems. Chexsystems was developed to detect fraudulent activity and to help financial institutions manage and analyze risk, specifically for 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.
This means that consumers can question any information contained in the report, dispute entries in it and can request evidence for reported activity. Majority of banks and credit unions in the US use Chexsystems and if there is anything negative regarding a prospective applicant, that applicant could have difficulties opening a checking account. Chexsystems: is it fair? Critics have voiced their objections about Chexsystems' reporting practices claiming that the system is characterized by unfair reporting. Unlike credit bureaus that issue reports containing both positive and negative information, critics insist that Chexsystems only reports on the negative, hence jeopardising the credit reputation of individuals who are otherwise 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.
What information is provided in the Chexsystems report? A sample report shows us that it is indeed very thorough. The name and address of the person in question appear at the top of the report, along with an ID number and Social Security number. If you should ever write Chexsystems about a report, he you should refer to your social security number and ID number in your correspondence.
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.
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.
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 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.
The next box says, "Retail Information," and this includes checks you have written to stores and other retailers that have been returned for nonsufficient funds. When a store gets a check that it can't cash because of nonsufficient funds, a company called "Shared Check Authorization Network" receives it and keeps a database of your fraudulent activity and checks that have been returned. In order to participate, including obtaining information for check authorization and verification, retailers must be SCAN members. Chexsystems uses SCAN, but it does not get involved in collecting returned checks.
If you've ordered any checks, your Chexsystems report also provides this information. It also details the history of your check orders. The next two boxes after this are validation activities for your driver's license and your Social Security number. Your driver's license is processed both with validation and then verification. Chexsystems validates your driver's license by matching your license format with your state's approved format. It also verifies 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.
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