How banks use ChexSystems to protect themselves from deadbeats

ChexSystems helps banks and credit unions protect themselves against habitual check bouncers. (Photo Credit: CC BY-SA/Tracy O/Flickr)

If you’ve ever applied to open a checking account, chances are your name has been run through ChexSystems. Much like a credit information bureau, ChexSystems identifies your banking history and lets your potential new bank know if you’re a risky client who bounces checks, etc. Customers who have made a habit of mishandling their checking and savings accounts tend to end up on the ChexSystems database for five years, which can make it difficult to open a new account. Here’s more about how the system works, and what you can do if your name is on the list.

Why banks use ChexSystems

Check fraud and related abuse reportedly costs banks billions of dollars annually. As a means of defending against such loss, at least 80 percent of all U.S. banks and credit unions are a part of the ChexSystems network. While the system can be useful in weeding out bad apples, critics of the ChexSystems screening approach cracks down on conscientious consumers who have written a bad check or two by mistake. ChexSystems representatives insist that a couple of bad checks aren’t enough to get a consumer on the blacklist, however. If an account is closed due to being overdrawn, however, the trip to the blacklist can almost be assured.

Ways consumers can avoid the ChexSystems blacklist

First of all, don’t write checks if there’s any doubt as to whether there’s money in the bank to cover them. If you’re waiting on a deposit to be credited, find out from your bank how long it typically takes before firing off checks. At all times, maintain a balanced checkbook and check it with your online bank statement. Finally, if you must close a checking account, make sure any outstanding checks have cleared, all automatic debits have been rerouted or stopped, and that you have paid all applicable fees. If you make the ChexSystems list and believe that this has occurred in error, it is possible to dispute the matter with ChexSystems directly.

Learning how to stay off ChexSystems’ list with Get Checking

Typically, it takes five years for your name to drop off the ChexSystems list, provided you aren’t on the list because you were caught in the act of bank fraud. There are ways to get off the list more quickly, though. A consumer credit counseling program called Get Checking is a one-day, six-hour class on the basics of owning and using a checking account, as well as a primer in general financial responsibility. If a consumer on the ChexSystems list completes the Get Checking class, they will be able to open a checking account at a participating bank.

Registration for Get Checking typically costs about $50. If a consumer owes a bank money due to bounced check overdraft, proof that the money has been paid back is typically required before a Get Checking certificate of completion will be given.