Citibank Forced to Rely Less on ChexSystems

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Updated on Thursday, January 29, 2015


ChexSystems is a credit report for banking accounts. If you bounce a check or don’t pay an overdraft fee, you could have a derogatory mark on your ChexSystems file. Most people have never heard of the report until they end up on the negative list, which can make it impossible to open checking accounts anywhere else. Banks have almost complete discretion in how they report people’s behavior to the system. Many banks often refuse to let you open a bank account if you have just one bad mark. Chex reports are also known to have a high level of data inaccuracy.

The unbanked in America often find ChexSystems reports to be a huge barrier to lowering banking fees and escaping the fringes of the financial world, including payday lenders and money transfer services. Just one bad check could force you into the expensive world of check cashing providers for up to 7 years.

This week, the Attorney General of New York reached an agreement with Citibank. Although Citi is not being as progressive as Capital One (who no longer uses Chex for their checking accounts), it is making some big changes. Citibank will consult Chex for anti-fraud purposes, but the bank is altering its use of negative information going forward. Citi has promised that it will no longer refuse to open a bank account because of minor errors, like isolated examples of bounced checks or overdrafts.

Everyone should order their annual free copy of their Chex report, which you can learn to do here. We are pleased Citibank is eliminating its most egregious practice of banning someone from banking for years after just one mistake. We find the punishment for small overdraft infractions particularly hypocritical, given how much money banks like to make from overdraft fees.

However, we wish Citi would have gone further, and believe CapitalOne 360 still offers a better solution. Capital One is famous for its use of data, and our guess is that it understands the limited value of Chex Systems screening.

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