If you’ve opened a checking account recently and you didn’t have any trouble doing so, it’s likely that you haven’t heard of Chexsystems. However, if you try to open a bank account and you do have some trouble, it might be because of Chexsystems.
eFunds is a company that was created in 1999 as a tool of the financial lending services sector. It in turn produced Chexsystems. eFunds developed Chexsystems to detect any fraudulent activity and to assist financial institutions with risk management analysis, in particular for individual customers.
While your credit score represents your history in paying bills and the way you manage credit, Chexsystems monitors and reports on your banking activities. It looks for unusual or suspicious banking transactions, overdrafts, cashing checks against insufficient funds and not meeting minimum account balances.
Chexsystems therefore serves two functions: as a verifier of checking activity and as a consumer credit reporting agency just like Equifax or TransUnion. And just as you’re entitled to one free credit report annually, you too can ask for a Chexsystems report once a year, free of charge. When it assumed its second function in 1999, it came under the Fair Credit Reporting Act.
This means that if you are a consumer, you can question any information Chexsystems contains, including the ability to dispute entries. Most banks and credit unions in the United States use Chexsystems. If there’s any negative reporting on a particular client, that person may have trouble opening a checking account. Is Chexsystems fair? Some critics have objected to their reporting practices, saying that the system does not report fairly, and unlike credit bureaus with both positive and negative information, critics say that Chexsystems only contains negative information, so that this jeopardizes consumers’ reputations who 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.
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.
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 third section or box reports on “Inquiries not Initiated by Consumer Action”. What this means simply is that other people have asked about you. These people could be your present creditors, pre-approval creditors or potential investors who are trying to assess you as a risk.
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.
So before you write out a check, think of Chexsystems and make sure that you have enough money in the bank to cover the check, that it is your check and not someone else’s, and that perhaps it’s a better idea to pay for merchandise with cash or a credit card!