Imagine going to a new bank and waiting in line to open an account. You chat with the friendly bank teller, giving him the information he needs to open an account, along with your ID.
Maybe you’ve had a few overdraft charges in your past, but who hasn’t? Besides, your act is together now, and when you need a late-night pizza, you know you have the money in the bank for it. After a few minutes, his face turns grim. “I’m sorry,” he says. “At this time, we can’t offer you a bank account with us.”
What gives? If you haven’t experienced this embarrassing event yourself, count yourself lucky. It happens every day, and it might just happen to you someday too. It may have to do with one consumer reporting agency: ChexSystems.
Read on to learn more about ChexSystems and what you can do if you want to open a bank account with no ChexSystems.
What is ChexSystems, anyway?
ChexSystems is a consumer reporting agency (CRA), and it operates like the credit agencies Equifax, Experian, and TransUnion. Except, in this case, ChexSystems collects data about how you’ve used your past bank accounts, rather than how you’ve paid off your debts. Another key difference between ChexSystems and the debt-related CRAs is that ChexSystems generally only lists negative information on your report. So, even if you’ve only had one overdraft charge, it’s possible that it’s the only thing listed on your ChexSystems report (even if you are an otherwise perfect banking customer.)
There are a few other agencies that do the same job as ChexSystems, but according to the National Consumer Law Center, ChexSystems is one of the most widely-used CRAs. In fact, over 80% of financial institutions use CRAs like ChexSystems and its rival, Early Warning Services, to determine whether to grant someone a bank account. Information on your ChexSystems report stays there for a full five years. This means that your mistakes from yesteryear can still impact you today.
Why ChexSystems is Unfair
The reason banks use CRAs like ChexSystems is to make sure you’re not going to open a fraudulent account or rack up a bunch of unpaid bank fees. It makes sense, right?
In reality, however, using ChexSystems is an unfair business practice that can harm consumers like you, according to the National Consumer Law Center. Currently, 17 million Americans — about five percent of the entire U.S. population — don’t have a bank account. And, out of those in this group who have had bank accounts in the past, about 15.5% of them can’t get a bank account now, likely due to a negative CRA report.
Lest you think this is a problem just for poverty-stricken people, think again. On average, about 25% of banks will automatically deny you right off the bat if you have any negative information on your account at all, even if you’re a millionaire. A further 50% of banks will need to call in a branch manager to make a decision on your case (how embarrassing).
Couple this with the fact that many big banks have unfair or unclear overdraft policies, making it even harder to avoid negative marks on your ChexSystems report.
What are my rights for dealing with my ChexSystems report?
Luckily, ChexSystems is governed by the Fair Credit Reporting Act just like TransUnion and the other CRAs. This means that when it comes to how your information is reported and used, you do have rights.
You can get a free copy of your ChexSystems report once per year, just like with your credit report. It’s a good idea to check your report periodically to make sure there’s no fraud or errors listed on it, especially if you plan to open a new account.
If you do apply for a bank account and are denied based on what the bank saw in your ChexSystems report, you can also get another copy for free to make sure it’s accurate. Sadly, even if you’ve paid all of your bank charges, negative information still stays on your report – if it was actually your fault. Yet, if you spot an error, you can resolve it by contacting your bank and ChexSystems to file a dispute. The bank and ChexSystems have to investigate your dispute, but — surprise — it doesn’t always go in your favor, even if you’re in the right. If you think both of them made a mistake and they’re not clearing it up to your satisfaction, you can also file a report with the Consumer Financial Protection Bureau and the Federal Trade Commission.
What if I’m still denied a bank account based on my ChexSystems report?
If you’ve checked your report and it accurately reports negative information, we hate to be the bearer of bad news. Many banks won’t offer you a bank account.
However, you’re not out of options just yet. There are many bank accounts — like Chime Bank — that don’t use the ChexSystems reports. If you open a bank account with Chime Bank, you won’t even be charged pesky overdraft fees, which may have led to the negative information in in the first place.
Having a negative ChexSystems report is certainly an inconvenience, but it’s not the end of the world. Chime has your back, even if no other banks do.