One Strike, You're Out

Checks Imbalances 1 | 2 | 3 | 4 | 5 | 6 | 7

ChexSystems is not a bank but rather a licensed consumer reporting agency (CRA) that provides a nationwide database of banking customers who have been reported for writing bad checks, defrauding banks, or otherwise being guilty of "non-sufficient funds" (NSF) activity.

Like other CRA's such as Equifax or First American Registry, ChexSystems' publicity materials claim the company bears no responsibility for the decisions banks make: "ChexSystems neither approves nor declines accounts for banks and credit unions. The decision is entirely up to them."

• Introduction • One Strike, You're Out • The Paperless Trail • The Disloyal Opposition • Warning Shots • The Starving Class • An Alternative: PassChecking --- • Consumer Complaints about Chexsystems • Consumer Complaints about Certegy

ChexSystems' portrayal of unbiased, factual reporting extends all the way down to the dollar amount of any NSF activity. Be it five dollars or five hundred, any uncollected or overdrafted check activity will find its way onto your report, and your records will be added to the ChexSystems database. In addition, banks themselves may decide that a customer's account activity is not worth keeping the account open, and close the account for "cause".

The definition of "cause" varies tremendously according to banks' individual policies, but if First Republic's policy is any indication, banks will "verify the previous bank account relationships of applicants for our accounts."

It's estimated that anywhere from eighty to ninety percent of banks, credit unions, and financial institutions in America use ChexSystems to study the history of applicants and their banking activities. The exact number of customer records is unknown, but it was estimated at more than seven million as of 2001. And what all of those seven million-plus have in common is that once they are reported to ChexSystems, the report stays on their record for five years.

It seems impossible to believe, but a Chex "offender" may be denied any opportunity to open a bank account until the item (or items) is removed from the report. That's five years of having to make any and all transactions in cash, using money orders, and so on. And forget getting a credit card if you don't have one.

As a CRA, ChexSystems can furnish any consumer's data to a credit card agency, loan officer, and so on. That means even the most "subprime" lenders won't consider someone without a checking account. And ChexSystems also operates as a collection agency, "providing debt collection services to their members." How helpful.

Steve Smiley was just 16 years old when he found himself on ChexSystems. His brother had opened a joint checking account and used his name without his permission, then proceeded to overdraft several times, landing them both on the ChexSystems database.

"I am still in the system, because ChexSystems doesn't try to help the consumer get it removed in any way. They make money off of selling this information to banks, so why would they want to remove you?" Now 18, Steve has tried to open accounts with other banks repeatedly, only to be told time and again that he is ineligible due to his ChexSystems listing.

Steve felt like he was "a criminal… I realized when it comes to Chexsystems, there are no second chances. It's like you are in a prison, waiting to be released."

Next: The Paperless Trail

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