What is Chexsystems? – Chex Systems, Inc. is a private company that maintains and reports consumer bank account histories. The company is normally referred to as ChexSystems. ChexSystems is owned and operated by Efunds, Corporation, an international payment services company founded in 1999 by Deluxe, Corporation. Subscribers to the ChexSystems services include financial institutions such as banks and credit unions. A bank or credit union will receive reports from ChexSystems that show whether there have been any irregularities in a consumer’s relationship with a financial institution, including overdrafts, unsatisfied balances, deposit of fraudulent checks, or any suspicious account activity that other institutions have reported within five years. Banks use these reports when deciding whether or not to accept a new account application. A person who has had such activity reported about his or her banking relationships may be denied a new account by a member institution. ChexSystems reports that approximately eighty percent of financial institutions in the United States subscribe to its service.

ChexSystems is a Consumer Reporting Agency, as are the credit bureaus Experian, Equifax, and Transunion. ChexSystems is subject to the United States Fair Credit Reporting Act, a federal law that regulates the collection, distribution, and use of consumer credit information. The United States Federal Trade Commission is responsible for the administration of the Fair Credit Reporting Act, and private litigants can pursue action under the law as well.

ChexSystems has been widely criticized as following unfair reporting practices. Objections are that rather than reporting both positive and negative consumer records as do other consumer reporting agencies, ChexSystems reports only negative instances. Also, ChexSystems has been criticized for failing to provide any numeric risk analysis of consumer history like the Fair Isaac Corporation (FICO) score normally reported by credit bureaus. In response to these criticisms, banks have revised their handling of ChexSystems reports in several ways. These include disregarding ChexSystems reports that are more than three years old or

more than one year old if the consumer has repaid the overdraft or open balance, and raising the reporting level for accounts closed due to overdrafts from $50 to $100. Banks have also extended a consumer’s opportunity to repay a debt.

Consumers can obtain a copy of their ChexSystems record directly from ChexSystems. Getting reports from ChexSystems is easily accomplished with a request from the consumer. This will allow a consumer to review entries for accuracy. Any incorrect entries can be challenged by a consumer, and must be removed by ChexSystems if found to be incorrect. A consumer can also add to a record a statement from the consumer to support a dispute or explain the nature of charges shown. These steps are prescribed by the Fair Credit Reporting Act and resemble actions allowed by credit bureaus.

Not all banks and credit unions subscribe to ChexSystems, and it is possible for consumers with a negative ChexSystems status to still get a bank account. These so-called “second chance” bank accounts are widely advertised and are sought out by consumers whose banking records appear in ChexSystems reports. Some of these banks offer only limited services and some only do business online, but in most cases they are insured by the Federal Deposit Insurance Corporation (FDIC), the federal agency that guarantees individual bank deposits against loss due to bank failure. Some banks that do subscribe to ChexSystems may still allow new customers to open accounts in spite of the ChexSystems report.

There are also companies that do business getting consumer records removed from ChexSystems. A consumer can contest a ChexSystems report him or herself, and force removal of the report if it is incorrect or largely inaccurate, but if the report is accurate, then the consumer’s only option for removal may be to attempt repayment to the bank. The companies that offer a service for removal of a ChexSystems report are similar to credit repair services, and their methods are actually to simply follow the same steps available to a consumer, but in a more organized and ongoing fashion. The cost may be several hundred dollars, and there will be no guarantee of success.