The Dollar Stretcher
by Gary Foreman

Dear Dollar Stretcher,

Would you please check out ChexSystems? I’d like to know if anyone else has had an experience with them and what they have done about it.
JS

JS doesn’t say it, but he’s probably had trouble trying to open a checking or
savings account. And more and more people are running into the same problem. So
let’s take some time to learn about ChexSystems and the screening that banks do
before they agree to open an account for you.

First, some background on ChexSystems. It’s owned by Deluxe Corp. the world’s
largest check printer. They keep track of bounced checks, ATM overdrafts,
‘closed for cause’ accounts and the number of times that banks ask about your
financial history.

According to ChexSystems, banks lose $15 billion a year to check fraud and
abuse. Banks use the service in an attempt to avoid problem customers. Deluxe
claims that over 80% of all banks use ChexSystems. Although they’re the largest,
ChexSystems isn’t the only agency offering this type of service. Telecheck is
also in the same business.

It’s important to note that ChexSystems does not approve or deny your
application for a new account. All they do is provide information to the bank.
The bank makes the final decision.

Next let’s take a look at the files. Your file will include your name, address
and social security number. It will list factual information that the banks can
use to screen prospective customers.

One such record is that another bank has closed your account ‘for cause’. That
means that you wrote too many bad checks or had too many overdrafts. If
ChexSystems shows that a prior account was ‘closed for cause’ then it’s highly
unlikely that a new bank will open an account for you. Currently over 19 million
accounts are listed as ‘closed for cause’.

If you owe the bank money when your account is closed that will show in your
report. Paying the bank the monies owed will not remove you from ChexSystems’
list. They are only obligated to include a note in your file that you repaid the
debt.

The file will also show any non-sufficient funds (NSF) funds checks. They’ll
note whether you’ve made the check good or not. Some prospective banks will
overlook one or two NSF checks. Others will not.

ChexSystems also lists how many times you’ve tried to open a new account. If
you’ve tried repeatedly (and unsuccessfully) that will be listed. The more times
you try the harder it will get.

The files are governed by the Fair Credit Reporting Act. But that provides
limited help for frustrated consumers. Accurate negative information will
legally be kept on file for five years.

What should you do if you’re already on file? First, don’t close any open
accounts. It may be hard to replace them. You might not like your bank’s
charges, but don’t close your current account until you’ve opened a new one.

Find out what is actually in your report. You can order one from ChexSystems.

ChexSystems is obligated to remove inaccurate information. So if the report
contains errors, you can have them corrected. But you have no right to have
accurate information removed.

You can contact ChexSystems here.

Pay any NSF checks and outstanding fees that are listed on the report. Even if
you’ve already closed the account and don’t deal with that bank any more. After
payment has been made, send a written request to the bank asking that they send
a note for your file detailing the payment.

Look for entries that aren’t accurate. You can have a statement explaining your
side of any disputes entered into your file.

It’s almost impossible to have factually accurate information deleted until the
five years have passed. And filing for bankruptcy will not erase your
ChexSystems file.

If you need to open a new account, tell the prospective bank that you have some
problems in your ChexSystems file. Show them your report. If they’re going to
turn you down it’s better if they do it before accessing the file themselves and
adding another entry that shows you’ve been refused.

It’s also possible that you can find a bank that doesn’t use ChexSystems.
Currently some internet banks are more forgiving than their traditional
brethren.

Suppose you don’t have problems now and want to avoid them. Generally three
things cause negative entries in your file. The first is obvious. Don’t write
checks until you’re sure that the money to pay them has cleared your account.
Just because you deposited a check yesterday doesn’t mean that money is
available for use today. Find out how long it will be before you can count on
that money to pay the checks you write.

Second, keep track of your account balance and reconcile your bank statement as
soon as you get it. Even with a calculator it’s easy to make mistakes in your
checkbook. It’s important to know how much you have in the account at all times.

Finally, make sure that all checks have cleared and all fees are paid before you
close an account. One possible source of potential problems are automatic
withdrawals. You must stop all automatic withdrawals before you close an
account. Otherwise they’ll create a ‘bounced check’ when they try to access your
closed account.

Recently there has been more public awareness of ChexSystems and the bank
approval process. The NAACP has complained that the poor are hardest hit. Banks
have met with government representatives and will consider using a more flexible
system to evaluate potential customers. Additional legislation is possible, but
it’s hard to tell banks that they must do business with people who could prove
unprofitable.

We hope that JS isn’t currently having a problem with ChexSystems and enjoys the
benefits of a clean file.

Gary Foreman is a former Certified Financial Planner who currently edits The
Dollar Stretcher website www.stretcher.com
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