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Updated on Monday, February 23, 2015
On Friday, the Attorney General of New York announced that it had reached an agreement with Santander Bank. Starting from September 30, 2015 Santander will overhaul its use of ChexSystems and has promised to largely eliminate its use of “account abuse” screening which has made it impossible for many people to open a checking account. This follows recent agreements with Capital One and Citibank.
Many people have never heard of ChexSystems. Like Experian, TransUnion and Equifax, ChexSystems is like a credit bureau, except if tracks information related to checking accounts. If you go overdraft on your checking account and never pay back your fees, you will be reported to Chex. Like the credit bureaus, your information will stay in ChexSystems for 7 years. Overdrafts which remain unpaid for 60 days are typically reported, although there are no rigid reporting requirements.
A senior manager at Chase told MagnifyMoney that Chex is the “wild west” of reporting. Banks report to the database at their own discretion. Some banks could report for just a small unpaid balance. For example, one unpaid overdraft of $5 could keep you from opening another bank account for years. Because most banks tend to refuse to open accounts once you have negative information on your report, regardless of the severity.
Given the costs of financial services for the unbanked, the Attorney General’s office of the State of New York has taken an interest in the use of ChexSystems and its disproportionate impact on the poor. Santander Bank will continue to use Chex to screen for fraud. However, most overdraft infractions will now be ignored, allowing people to open bank accounts.
People have the right to request a free copy of their ChexSystems report once a year, and can dispute incorrect information. You can request your free report here and you can dispute incorrect information here.
We applaud the Attorney General of New York for championing this cause, and we hope that more banks abandon this practice. Ironically, banks could eliminate all overdrafts by declining any transaction that causes and overdraft and charging no fee for that decline. American Express has done just that with Bluebird, so it is possible.