How ChexSystems Works
What Is ChexSystems?
ChexSystems is a service is provided to the banking industry and its membership is made up of banks and credit unions. What ChexSystems does is what they call account verification services. The main goal of the ChexSystems for banks is to evaluate new account applications and to identify people who have a questionable banking history.
Since this information is shared between all banks and credit unions, any overdraft fee dispute or other activity that the bank considers to be fraud is readily available for them to see. At the end of the day, you do not want your name on the ChexSystems list as a risky candidate for a checking account.
It is currently estimated that ChexSystems has close to 10 million names in its database and though consumers have long spoken out against it, banks and credit unions supported it vigorously as a valuable tool to battle bank fraud that sometimes cost the banks billions.
How it Works
When you apply for a bank account or, more specifically, a checking account, the bank is going to contact ChexSystems to find out if there is anything in your history that indicates that you would be a risky person to have as a customer. The bank is going to review this information and then let you know whether or not your account can be opened.
Here’s a simple breakdown of how it works. A member bank or credit union submits their inquiry to ChexSystems. ChexSystems will then respond and let the bank know if any of the following information exists about you in their database:
- Do you have any closed accounts on file?
- Have all your outstanding debts been paid in our current?
- Does the Social Security number you submitted to ChexSystems match what they have on file?
- Do you have any outstanding checks that need to be paid that can be seen in this scan database? This is essentially used to let retailers know that you do not have sufficient funds in your account and that you have checks that have still not been paid.
- How many accounts of you applied for over the past three months?
- Is the drivers license you submitted accurate?
- If you do have closed accounts, were they close for specific, valid reasons?
- Has any bank been unable to collect on any transaction, overdraft, or payment that they made even though there was insufficient funds?
- If you have overdrafts, do you have many of them?
- Is there any record of ATM or debit card abuse in any of your previous accounts?
- Have you ever supplied false information when opening any type of bank account?
All this information will be compiled and sent back to the bank where you submitted your application. ChexSystems is not responsible for approving or denying you for an account but to provide the information that’s in their database. Many banks will try to tell you that you were declined because of issues with your ChexSystems record. However, this is likely just them not wanting to approve your account.
Again, at the end of the day, you do not want to have any damaging information in the ChexSystems database. It can take quite a bit of time to correct such information and be eligible for new accounts.
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