ChexSystems
Encyclopedia
ChexSystems is an eFunds
check verification service
and consumer credit reporting agency like Experian
, Equifax
and TransUnion
. While most credit reporting agencies broker data about how a consumer handles credit relationships, ChexSystems provides data related to how a consumer has handled deposit account
s at banking institutions.
s and credit unions in the United States
use ChexSystems as a step in the consumer checking or savings account application process. eFunds claims that their services are used in 9,000 banks, including over 100,000 individual bank branches in the United States
. The ChexSystems products offered by eFunds are DebitBureau, DebitReport, FraudFinder, Identity Theft, ID Verification, ICMS, ProspectChex, QualiFile, and Transaction Monitoring.
s, unsatisfied balances, depositing fraudulent checks
, or suspicious account handling that other banks have reported in the past five years. The majority of banks that use ChexSystems will not open a new deposit account for a customer that has a negative item reported. In 1999, ChexSystems was successfully deemed a consumer reporting agency
, and therefore, governed by the Fair Credit Reporting Act
. Consumers are now able to retrieve a free ChexSystems report annually, dispute negative items and demand proof of the data contained in the report.
prevention products to the general public, many people have criticized the company for what they consider to be unfair reporting practices. For instance, while many CRAs
report both positive and negative account histories, ChexSystems reports only contain negative information. Also in comparison to traditional CRAs
, ChexSystems does not provide a risk
analysis score like the FICO
score; therefore many consumers who have kept positive banking relationships for as many as 30 years may have their accounts closed and be blacklist
ed from opening new accounts based on a single banking error. The Greenlining Institute
has published a report indicating wide disparities in the criteria banks were using when reporting negative items to a consumer's ChexSystems report.
of San Francisco held four meetings to discuss possible reform in the treatment of individuals reported to ChexSystems. These meetings included a discussion of potential best practices which a financial institution could implement to reduce its dependence on ChexSystems data in its decision process on opening accounts. Practices identified include:
Since the meetings at the Federal Reserve Bank
of San Francisco, all participating financial institutions have announced that they will implement positive changes in the way they use ChexSystems. In September 2000, Bank of America was the first financial institution to announce specific changes in its use of ChexSystems. Revised practices include:
During a December 2000 meeting, Bank of America
reported that in the first two months under the revised standards, its new ChexSystems policies had resulted in approximately 1,800 ChexSystems "overrides". This allowed 1,800 individuals to open deposit accounts that would have been denied under the bank's former policies. Best practices to address the barriers ChexSystems reports may create for low-and moderate-income individuals include:
Some banks that use ChexSystems also utilize the services of Early Warning Services, LLC, a fraud prevention and consumer reporting agency owned by Bank of America, BB&T, JPMorgan Chase and Wells Fargo.
EFD (eFunds Corporation)
EFD is a payments services company. EFD provides financial service companies and other large enterprises with new account decisions, fraud detection and payment processing services. On June 27, 2007, Fidelity National Information Services, Inc. announced that it was acquiring EFD in an all-cash...
check verification service
Check verification service
A check verification service provides businesses or individuals with either the ability to check the validity of the actual check or draft being presented, or the ability to verify the history of the account holder, or both.it often provide guaranteed service....
and consumer credit reporting agency like Experian
Experian
Experian plc, formerly known as CCN Systems, is a global credit information group with operations in 36 countries. The company employs 15,500 people with corporate headquarters in Dublin, Ireland and operational headquarters in Nottingham, England and Costa Mesa, California, US...
, Equifax
Equifax
Equifax Inc. is a consumer credit reporting agency in the United States, considered one of the three largest American credit agencies along with Experian and TransUnion. Founded in 1899, Equifax is the oldest of the three agencies and gathers and maintains information on over 400 million credit...
and TransUnion
TransUnion
TransUnion is the third largest credit bureau in the United States, which offers credit-related information to potential creditors. Like major competitors Equifax and Experian, TransUnion markets credit reports directly to consumers.- History :...
. While most credit reporting agencies broker data about how a consumer handles credit relationships, ChexSystems provides data related to how a consumer has handled deposit account
Deposit account
A deposit account is a current account, savings account, or other type of bank account, at a banking institution that allows money to be deposited and withdrawn by the account holder. These transactions are recorded on the bank's books, and the resulting balance is recorded as a liability for the...
s at banking institutions.
Services
Eighty percent of all commercial bankBank
A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...
s and credit unions in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
use ChexSystems as a step in the consumer checking or savings account application process. eFunds claims that their services are used in 9,000 banks, including over 100,000 individual bank branches in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
. The ChexSystems products offered by eFunds are DebitBureau, DebitReport, FraudFinder, Identity Theft, ID Verification, ICMS, ProspectChex, QualiFile, and Transaction Monitoring.
Reporting
A consumer's ChexSystems report contains banking irregularities such as check overdraftOverdraft
An overdraft occurs when money is withdrawn from a bank account and the available balance goes below zero. In this situation the account is said to be "overdrawn". If there is a prior agreement with the account provider for an overdraft, and the amount overdrawn is within the authorized overdraft...
s, unsatisfied balances, depositing fraudulent checks
Check kiting
Cheque fraud/check fraud refers to a category of criminal acts that involve making the unlawful use of cheques in order to illegally acquire or borrow funds that do not exist within the account balance or account-holder's legal ownership...
, or suspicious account handling that other banks have reported in the past five years. The majority of banks that use ChexSystems will not open a new deposit account for a customer that has a negative item reported. In 1999, ChexSystems was successfully deemed a consumer reporting agency
Credit bureau
A credit bureau , or credit reference agency is a company that collects information from various sources and provides consumer credit information on individual consumers for a variety of uses. It is an organization providing information on individuals' borrowing and bill paying habits...
, and therefore, governed by the Fair Credit Reporting Act
Fair Credit Reporting Act
The Fair Credit Reporting Act is a United States federal law that regulates the collection, dissemination, and use of consumer information, including consumer credit information. Along with the Fair Debt Collection Practices Act , it forms the base of consumer credit rights in the United States...
. Consumers are now able to retrieve a free ChexSystems report annually, dispute negative items and demand proof of the data contained in the report.
Criticism
While eFunds claims to provide fraudFraud
In criminal law, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation...
prevention products to the general public, many people have criticized the company for what they consider to be unfair reporting practices. For instance, while many CRAs
Credit bureau
A credit bureau , or credit reference agency is a company that collects information from various sources and provides consumer credit information on individual consumers for a variety of uses. It is an organization providing information on individuals' borrowing and bill paying habits...
report both positive and negative account histories, ChexSystems reports only contain negative information. Also in comparison to traditional CRAs
Credit bureau
A credit bureau , or credit reference agency is a company that collects information from various sources and provides consumer credit information on individual consumers for a variety of uses. It is an organization providing information on individuals' borrowing and bill paying habits...
, ChexSystems does not provide a risk
Risk
Risk is the potential that a chosen action or activity will lead to a loss . The notion implies that a choice having an influence on the outcome exists . Potential losses themselves may also be called "risks"...
analysis score like the FICO
Fico
Fico may refer to:* Fair Isaac Corporation , an American company* FICO score, a credit score developed by Fair Isaac Corporation * Hurricane Fico, a hurricane in the 1978 Pacific hurricane season...
score; therefore many consumers who have kept positive banking relationships for as many as 30 years may have their accounts closed and be blacklist
Blacklist
A blacklist is a list or register of entities who, for one reason or another, are being denied a particular privilege, service, mobility, access or recognition. As a verb, to blacklist can mean to deny someone work in a particular field, or to ostracize a person from a certain social circle...
ed from opening new accounts based on a single banking error. The Greenlining Institute
Greenlining Institute
The Greenlining Institute is a public policy, research, and advocacy non-profit organization based in Berkeley, California. The Greenlining Institute's mission is to empower communities of color and other disadvantaged groups through multi-ethnic economic and leadership development, civil rights,...
has published a report indicating wide disparities in the criteria banks were using when reporting negative items to a consumer's ChexSystems report.
Banks Respond
Beginning in August 2000, the Greenlining Institute, a public policy center headquartered in San Francisco, and the Federal Reserve BankFederal Reserve Bank
The twelve Federal Reserve Banks form a major part of the Federal Reserve System, the central banking system of the United States. The twelve federal reserve banks together divide the nation into twelve Federal Reserve Districts, the twelve banking districts created by the Federal Reserve Act of...
of San Francisco held four meetings to discuss possible reform in the treatment of individuals reported to ChexSystems. These meetings included a discussion of potential best practices which a financial institution could implement to reduce its dependence on ChexSystems data in its decision process on opening accounts. Practices identified include:
- Training staff to use judgment to assess risk when opening accounts
- Setting minimum limits to activate the use of ChexSystems
- Considering the possible override of a customer denial for situations that are beyond the customer’s control, such as a prolonged illness
Since the meetings at the Federal Reserve Bank
Federal Reserve Bank
The twelve Federal Reserve Banks form a major part of the Federal Reserve System, the central banking system of the United States. The twelve federal reserve banks together divide the nation into twelve Federal Reserve Districts, the twelve banking districts created by the Federal Reserve Act of...
of San Francisco, all participating financial institutions have announced that they will implement positive changes in the way they use ChexSystems. In September 2000, Bank of America was the first financial institution to announce specific changes in its use of ChexSystems. Revised practices include:
- Disregarding all ChexSystems entries greater than three years old provided the entry is not fraud-related
- Disregarding all ChexSystems entries greater than one year old if the consumer has repaid the debt
- Disregarding certain other ChexSystems entries if the consumer has repaid the debt and completes a course in financial responsibility
- Increasing the loss threshold for reporting closed accounts from $50 to $100 in overdrafts
- Increasing the length of time a customer has to repay the debt
During a December 2000 meeting, Bank of America
Bank of America
Bank of America Corporation, an American multinational banking and financial services corporation, is the second largest bank holding company in the United States by assets, and the fourth largest bank in the U.S. by market capitalization. The bank is headquartered in Charlotte, North Carolina...
reported that in the first two months under the revised standards, its new ChexSystems policies had resulted in approximately 1,800 ChexSystems "overrides". This allowed 1,800 individuals to open deposit accounts that would have been denied under the bank's former policies. Best practices to address the barriers ChexSystems reports may create for low-and moderate-income individuals include:
- Increasing the negative balance threshold for reporting customers to ChexSystems from $25 to $100
- Removing customers from the ChexSystems database if the negative balance is repaid within 90 days (previously, repayment was required within 30 days)
- Improving the overdraft notification process to include more visible language that explains how the institution uses ChexSystems and the consequences of being reported
- Refraining from reporting customers until numerous attempts have been to contact them and providing ample opportunity to settle their accounts before a report is submitted to ChexSystems
Some banks that use ChexSystems also utilize the services of Early Warning Services, LLC, a fraud prevention and consumer reporting agency owned by Bank of America, BB&T, JPMorgan Chase and Wells Fargo.