Can You Survive 5 Years Without a Checking Account? With ChexSystems You May Have To
Chexsystem is an efund system that was designed to help banks determine which new banking customers could cost the bank money when they open a checking account. While this sounds like a good idea on the surface, it may wreak havoc in the lives of those depending on checking accounts to help them pay their bills. The way the system is set up, it may only take one overdrawn draft to keep you from having a checking account for the next 5 years.
How ChexSystems Works
Chexsytems works much like a credit report only the only information contained in these reports are in regards to your checking account and that information is based only on those checking accounts that are closed by the bank who put your name into the chexsystem. Once there, it remains for 5 years and once a new bank sees your name in the Chexsytem they can refuse to allow you open a checking account.
One of the problems with Chexsystems is that is no standard criteria. Since there is wide disparity in how different banks do business and why close individual checking accounts. One person could conceivably have their name submitted to Chexsystems because of one simple error that results in a bounced check that wasn't made good on within a couple of days. While other banks may only close an account if you fail to make arrangements to make good on the overdraft or have repeated overdrafts.
Another problem with Chexsystems is that they only report the negative. For example, you may have had the same checking account for 20, 30, or 40 years without any problems, then suddenly your bank closes your account based on one error and reports you to Chexsystems. The system then shows that you were overdrawn, but shows nothing of your long history and checking account with the bank prior to that one incident. When you try to open a checking account with a new bank and the bank checks with Chexsytems, they won't see any information regarding all those good years where your checking account was problem free, all they will see is the “bad” report.
Unlike many credit report companies Chexsystems offer no risk analysis to help banks determine just how much at risk they have if they allow you to open a checking account. You are basically lumped in with those people who may have fraudulently bounced thousands of dollars worth of checks while you may have only bounced too or three accidentally for a few dollars.
The end result is that you are either going to end up living without a checking account for the next five years or you will have to find a bank that is willing to over ride the Chexsystem and look at you on an individual basis. Thankfully, more and more banks are setting up criteria where they themselves evaluate the risk you pose, giving you an opportunity to recover from your mistakes and open a checking account.