On Monday, Capital One reported that it will no longer use ChexSystems to stop people with a history of overdrafts or bounced checks from opening checking accounts. If you are like most people, you may be asking, what is ChexSystems and how does it impact me?
Overview of CheckSystems
ChexSystems is just like a credit bureau, except it only deals with checking and savings accounts. The bureau captures the following information:
- Inquiries: if you try to open a checking or savings account, your bank will pull a ChexSystems report (just like a bank pulling a credit report when you apply for a loan). Every inquiry is recorded on your record.
- Bounced Checks: certain retailers, collection agencies and check cashing companies will report bounced checks to a company called Certegy. ChexSystems receives information directly from Certegy Check Services and includes it in your report. Chex is also quite clear: they are not responsible for the validity of the information.
- History of Checks Ordered: some banks may report any time that you order checks
- Negative Information: banks can report “mishandled” account information to Chex. That can include accounts that were closed (for example, for excessive bounced checks) or accounts that have unpaid overdraft or other charges.
Here is the shocking part: banks get to decide what and when to report to ChexSystems. One bank may decide to report any checking account that is closed, even if the balance is only -$12 (and the written off balance is only fee income). Another bank may only report accounts that have a very negative history (hundreds of bounced checks and a negative balance of $300 or more). When to report is at the complete discretion of the banks. When discussing ChexSystems, a senior banker told me: it is the dark side.
How does it impact me?
Most people only find out about ChexSystems when they try to open a new checking account and are declined.
Once you end up on the negative list of ChexSystems, it may become impossible to open a new checking account. Again, it is up to the bank to decide how to use the information. But, a single negative item (one closed, uncollected account) could make it very difficult to open new checking accounts.
The negative information stays on your ChexSystems report for 5 years.
How can I see what is on my report?
You can actually get a free report every year. Visit the ChexSystems website and request your free report. They will send you a paper copy of your report (yes, they use snail mail).
What if there are mistakes?
Once you receive your free report, you may see items that don’t look right. The most common reasons are ID theft (someone opened an account in your name and bounced checks) or bank error.
Visit this ChexSystems website to dispute records that are not correct.
Warning: If you want to dispute “Retail Information” (this will be clearly marked on your ChexSystem report, and it relates to checks that bounce at certain retailers or collection agencies), then you need to call Certegy directly. Their phone number is 1-866-543-6315. You can also call this number to request a copy of your Certegy report.
If you are not satisfied with the response that you receive, then you should leverage the CFPB Complaint service. (The Consumer Finance Protection Bureau, part of the federal government). You can complain online. Just select “credit reporting.” Not all complaints are treated equally by the banks, and the CFPB means that you have the government on your side, which can help improve your chance of success.
So, is Capital One being a good corporate citizen by no longer using Chex to stop an account from being opened? The decision came after the New York Attorney General began investigating the use of ChexSystems, and its impact on low-income individuals who are blocked from the banking system. So, we don’t think this was their idea. But, they are the first bank to do this.
We applaud Capital One for agreeing to waive the requirement. A single mistake should not keep you out of the banking system forever. However, we would like Capital One to go even further. They could completely shake up the overdraft market.
And they don’t need to look far for inspiration. CapitalOne 360 is the online bank (formerly ING Direct) that:
- Provides you with an overdraft line of credit. You always know how much credit you have available (there is no guessing game)
- Does not charge a transfer fee for using the line of credit
- Only charges interest for the days and amount that you are borrowing.
If you go overdraft one time, for $100, and pay back the money in 15 days, then it would only cost you $0.46 at Capital One 360. However, the same overdraft in a Capital One branch would cost $35. And at Bank of America, it would cost $70 (because of extended overdraft fees).
Capital One has a chance to really transform the market. We hope they follow their own example, and do just that.
Find out the 8 things you need to know about ChexSystems here