What is Chexsystems ?
(by Steven J. Talrechi) If you've managed to open checking accounts so far without any trouble, chances are you have not heard of Chexsystems. However, if one day your bank refuses your application to open a checking account, then it's probably because of Chexsystems.
eFunds is a company that was created in 1999 as a tool of the financial lending services sector. It in turn produced Chexsystems . eFunds developed Chexsystems to detect any fraudulent activity and to assist financial institutions with risk management analysis, in particular for individual customers.
Chexsystems monitors and reports on your banking activities much as credit bureaus do with regard to how reliable you are in paying your bills and managing your credit, Chexsystems looks for suspicious banking transactions, overdrafts, insufficient funds' check cashing, or the inability to meet minimum account balances.
Chexsystems therefore serves two functions: as a verifier of checking activity and as a consumer credit reporting agency just like Equifax or TransUnion. And just as you're entitled to one free credit report annually, you too can ask for a Chexsystems report once a year, free of charge. When it assumed its second function in 1999, it came under the Fair Credit Reporting Act.
This means that consumers can question any information contained in the report, dispute entries in it and can request evidence for reported activity. Majority of banks and credit unions in the US use Chexsystems and if there is anything negative regarding a prospective applicant, that applicant could have difficulties opening a checking account. Chexsystems: is it fair? Critics have voiced their objections about Chexsystems' reporting practices claiming that the system is characterized by unfair reporting. Unlike credit bureaus that issue reports containing both positive and negative information, critics insist that Chexsystems only reports on the negative, hence jeopardising the credit reputation of individuals who are otherwise qualified to open checking accounts.
Given the mounting criticism, several banks met in 2000 and they agreed that they would re-consider their policy in approving checking account applications based on Chexsystems reports. Reforms were introduced, some of which include ignoring entries that are more than three years old as long as they are not related to fraudulent activity, disregarding Chexsystems entries that are one year old provided the consumer has settled the debt, and extending the time in which a consumer can repay the debt.
What's in a Chexsystems report? As an example, a sample report shows just how thorough this type of report is. The person's name and address appear at the top of his or her report, along with Social Security and ID numbers. If you should ever need to write Chexsystems about anything that appears in your report, you should include your Social Security number and ID number in your correspondence.
The first thing you read on the document is that Chexsystems will look into any information or entry that you believe is incorrect or inaccurate. You can send your inquiry to fax number 602-659-2197.
The next box is "reported information." This reported information originates from mostly financial institutions and is kept by Chexsystems for a period of five years. If there is more than one reported information or transaction, these are individually itemized. It lists the source of the reported information, the individual being reported on (including his social security number and driver's licence), and the type of report (e.g. non-sufficient funds).
Following "reported information" is another box that reads "Inquiries Initiated by Consumer Action." This means transactions initiated by you, the consumer, and shows all your applications for a credit card or any application you made at a financial instituion or bank. This information is kept for up to three years.
The third section or box reports on "Inquiries not Initiated by Consumer Action". What this means simply is that other people have asked about you. These people could be your present creditors, pre-approval creditors or potential investors who are trying to assess you as a risk.
Finally, there's one more box that says "retail Information," which includes checks issued to stores and other retailers that have been returned. When a store receives a check that they can't cash because there are non-sufficient funds, for example, this information is shared with the company called "Shared Check Authorization Network" or SCAN for short. It keeps a database of fraudulent activity and checks that have been returned. In order to obtain information for check authorization and verification, retailers must be SCAN members. This information is used by Chexsystems, but Chexsystems does not become involved in collecting returned checks.
In addition, if you've ordered checks, the report also provides this information. It also gives a detailed history of your check orders. Next, the two boxes after this are validation activities for your driver's license and Social Security number. Your driver's license is processed in two ways, both with validation and then with verification. Chexsystems matches your driver's license by matching your license format with your state's approved format, thereby validating it. It also verifies your place of birth and name, which is the verification aspect of this process.
It may do you well to think of Chexsystems before you write out your next check. You should be sure there's enough money in the bank to cover your check and that the money is truly yours and not someone else's. Of course, you can always pay for merchandise with a credit card or with cash.
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