What is Chexsystems ?

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 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 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 mounting criticism, several banks got together in 2000 and agreed that they would reconsider policies that affected checking account applications based on Chexsystems reports. There were some reforms introduced. Some of these reforms include ignoring entries more than three years old as long as they do not contain fraudulent activity. It also disregards Chexsystems entries that are more than one year old providing the consumer has settled the debt in question and it extends the time in which the consumer can repay 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.

If you believe that information is inaccurate, one of the first things the report states is that Chexsystems will look into any discrepancies you say exist. You can also send your inquiry to fax number 602-659-2197.

The next box is "reported information." This reported information originates from mostly financial institutions and is kept by Chexsystems for a period of five years. If there is more than one reported information or transaction, these are individually itemized. It lists the source of the reported information, the individual being reported on (including his social security number and driver's licence), and the type of report (e.g. non-sufficient funds).

Following "reported information" is another box that reads "Inquiries Initiated by Consumer Action." This means transactions initiated by you, the consumer, and shows all your applications for a credit card or any application you made at a financial instituion or bank. This information is kept 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.

In addition, if you've ordered checks, the report also provides this information. It also gives a detailed history of your check orders. Next, the two boxes after this are validation activities for your driver's license and Social Security number. Your driver's license is processed in two ways, both with validation and then with verification. Chexsystems matches your driver's license by matching your license format with your state's approved format, thereby validating it. It also verifies your place of birth and name, which is the verification aspect of this process.

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!

About the Author

Steven J. Talrechi has been publishing information on second chance checking for more than a decade now. Before you sign up for a second chance checking account, please come to our site for all the most up to date information. Don't reprint this exact article. Instead, reprint a free unique content version of this same article.

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