All it can take is one tiny bounced check to ensure that you lose banking privileges for five years, thanks to the ChexSystems datatbase that most banks use to report banking activities of their patrons. ChexSystems was designed to be an effective risk management database for banks, though its critics charge that its punishments rarely fit the crime. Unlike credit reports, which take into account both good and bad credit, with ChexSystems, all it takes is your bank reporting you for one bounced check and you’ll be reported to ChexSystems. Once “in the system,” you will be denied the ability to open any new checking accounts at any of the estimated 80% of banks in the United states that use the ChexSystems database. This penalty will remain in place for at least five years, no matter how good your checking skills may have been prior to that mistake.
Which means one little addition or subtraction mistake, or forgetting to take into account the ATM fine when withdrawing your cash can have severe consequences if that action results in insufficient funds, even if the fine is paid.
ChexSystems does provide an invaluable service to banks. Each year, banks spend billions of dollars due to check fraud. Still, for the average consumer who finds themselves part of this database, ChexSystem can seem to be a frustrating and unfair system.
But being reported to ChexSystems doesn’t have to signal the complete end of banking as you know it. The following are eight easy ways to “beat” ChexSystems.
1.) Prevention is the best medicine! Always take time to write down each purchase and every ATM withdraw, and double check your math skills. Make sure you understand your bank’s policies on fees so that you will not be hit with any surprise information.
2.) Once you have a checking account, do not close it without being certain of where you stand in ChexSystems. As with consumer credit reports, you are entitled to one free ChexSystems report each year. You can order your free ChexSystems report by going here.
3.) If it’s too late and your account has already been closed and you’ve been reported to ChexSystems, try applying at a credit union. While 80% of banks use ChexSystems, most credit unions do not.
4.) Try online banking. Many banks now allow you to apply for an account online instead of going into an actual branch. Some of the online companies do not perform a ChexSystems search if you apply online. Beware however – some preform credit checks instead, and some perform a ChexSystems search after you’ve already been “approved.” In the latter instance, the bank can close an account after it has already been opened if there is a ChexSystems report in your history.
5.) Try applying for a checking account without overdraft protection. Applying for a checking account with overdraft protection causes the bank to search your credit history as well as your ChexSystems record and any negative credit history in conjunction with a bad credit score will cause a definite rejection.
6.) Open a savings account with the bank first to build up a relationship with the bank. Often banks will not run a ChexSystems check on savings accounts and after you’ve proven yourself as a customer in six or twelve months, try reapplying for a checking account.
7.) Contact the reporting bank and dispute the record with them, particularly if the amount has already been paid in full. If it has not been paid, then you can negotiate to pay the amount off immediately if they will remove their complaint from ChexSystems.
8.) File a report with ChexSystems disputing the bank’s claim. There is very little profit in your reporting bank taking the time to verify the ChexSystems claim, and if they do not respond in time to your dispute, your account could be cleared automatically.
Ultimately, the best protection a consumer can have is to practice responsible banking practices. That being said, most people make mistakes now and then. With increasingly busy lifestyles and having to juggle multiple financial balls in the air, it is easy to make a mistake, and unfortunately, most banks will not hesitate to close a checking account, as they are not financial boons for the company. A general rule of smart banking is to set up short term CDs with the bank you have a checking account with. This will not keep them from reporting you to ChexSystems, but will likely keep them from closing your account and kicking you out into the cold to fend for yourself.
