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A ChexSystems Alternative: PassChecking

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

Like most Americans, Peter Headington's first encounter with ChexSystems happened purely by accident. A member of his family had forgotten to close a membership to an athletic club while planning a move and within 30 days, her account was in overdraft and she was listed in ChexSystems.

Despite her attempts to remedy the situation, from paying the overdraft and all fees, to appealing to banks and ChexSystem's representatives, no bank would open an account for her.

• 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

As Headington put it, "No one at the bank seemed interested or willing to look below the surface and consider the specifics of her situation. She said dealing with this problem made her feel ashamed and embarrassed, like she had done something criminal."

After hearing of her plight, Headington got involved and began to exhaustively research ChexSystems. What he found disturbed him greatly: 80% of all banks in America used ChexSystems for referencing NSF activity and approving or denying new accounts.

Banks would reflexively deny any customer the chance to open a new account if they were on ChexSystems, and many ended up there due to simple mistakes, dramatic life changes or third-party errors, rather than deliberate fraud.

"The ChexSystems net was clearly effective in catching what it was designed to catch -- those that committed check fraud -- but it was also trapping honest people making simple mistakes and providing no easy means of release." But the system "worked for banks, and it was easy to use…there was no reason for them to change."

If ChexSystems couldn't be fixed, then the alternative was to create a service that provided information and options for consumers who wanted out of Chex, but had nowhere to turn. Thus it was that Headington founded PassChecking.com in May of 2002.

A division of the Ethyl Media Group, PassChecking is one of the higher-profile Web resources devoted to aiding Americans who have been placed in ChexSystems. The site offers a large amount of free information to visitors, including overviews of what ChexSystems is and recommendations for financial and credit aid.

The $35 subscription fee grants users access to a regularly updated list of non-ChexSystems banks, and the Directo electronic checking account system, wherein users can set up an FDIC-insured "transitional account" that can accept payroll deposits, ATM withdrawals, etc.

Other sites claim to offer similar services for free. Headington says PassChecking excels in providing customer service, including personalized phone consultations to members, as well as quick response to email queries. Having a human voice available is often a welcome antidote to frustrated consumers dealing with automated phone lines, long wait times, and unresponsive email queries.

Headington says a subscription-based service provides his company the revenue to offer better service, more reliable information, and to eventually branch out into other services, such as Housing.com, an affiliated site that provides a one-stop shop for questions relating to mortgages, financing, etc.

"We're a small business…I have to pay for things like copywriters, web hosting, email access, and so on." In fact, Headington applauds the free community anti-Chex sites for keeping the information fresh and making sure that PassChecking keeps its own non-Chex lists up to date.

Although Headington doesn't think that banks deliberately use ChexSystems to weed out undesirable customers, he sees direct corollaries between the inflexible usage of the system and banks' practices of charging increasingly large fees for NSF activity.

"Since the tech bust put an end to heavy investment services, banks have been focusing more on the basic services they provide -- checking accounts, saving accounts, and so on. There's money to be made off late fees."

In his view, many banking customers also treat checking accounts like "payday loans" -- writing checks knowing that they don't have the funds to cover them, and simply paying the overdraft fees when the money comes in.

Lax practices like this, coupled with the "inflexible and reflexive manner" that ChexSystems operates with, can land consumers in the growing realm of the "unbanked."

Headington believes that fixing the problem of ChexSystems lies first and foremost with consumer education. Providing a comprehensive study of who ends up on ChexSystems and why would provide substantive answers as to how to get out of it.

"For example, a high percentage of our members are consumers who have filed for personal bankruptcy due to medical bills. They have also ended up on ChexSystems, and the two are not unrelated," he said.

The passage of bills like "Check 21" and S.256, the Bankruptcy Protection Act, will make it even more difficult for consumers in financial trouble to survive without extensive education, and knowledge of the resources that can help them.

Headington also sees many of ChexSystems' rules, such as the five-year term, as "unnecessarily punitive."

Banks should eliminate the 5-year threshold for cases of a simple mistake, like insufficient funds. Banks need to consider a new standard, like one to two years." Banks also need to provide more notice to their customers if they are in danger of being added to ChexSystems, as well as more open access to information for non-checking alternatives, such as electronic transfer accounts.

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