TL;DR (Too Long; Didn’t Read)
P.S. The above are affiliate links. If you buy something through one of these links, we will earn an commission for connecting you with the companies offering a solution to your needs. Thanks!
What Is ChexSystems? Why Do Banks Use It?
Chex Systems Inc is a reporting agency. Its network is comprised of member financial institutions that all regularly contribute information on mishandled checking and savings accounts to the company. ChexSystems then centralizes this information and provides a deposit account verification service to the members of its network (banks, credit unions, and other financial institutions). Virtually all banks, credit unions, and other financial institution use ChexSystems when they open new checking and savings accounts, although the decision to open a new account for someone who is in ChexSystems is entirely theirs. That is because ChexSystems only shares this information among member institutions to help them assess the risk of opening new checking and savings accounts for people who have been reported; they do not have the power to actually accept or deny a given account.
Financial institutions are not very risk-prone. They want to have all relevant information about prospective customers before opening new banking accounts for them, in order to screen out those that they’d rather not have as clients. For example, if you’ve written a lot of bad checks in the past, you most likely have been reported to ChexSystems; in that case, banks will likely assume that you’ve been engaging in fraud or otherwise “trying to beat the system”. People in such situations have found out that it’s hard to open checking or savings accounts when you’ve been reported to Chexsystems, and you typically have to look for second chance checking accounts. Although, from the financial institutions’ point of view, it’s a very good thing because they’re trying to lower their risk profile.
If it were only people that engaged in some kind of illegal activities that were reported to ChexSystems, then it wouldn’t be so bad. The thing is that there are other ways for you to end up on their list. Of course, you’re not going to end up their through no fault of your own (except if you’ve fallen victim to identity theft, and that’s a totally different case). ChexSystems has an Identity Theft Reporting Service that helps customers fight and/or prevent identity theft. You can place a security alert on your ChexSystems consumer report by completing and submitting an Affidavit Form. When added to your consumer report, ChexSystems customers will be notified of the security alert each time they inquire about you.
The way most people end up being on file with ChexSystems is that they overdraw their checking account and don’t pay the balance. What happens then is that the bank simply files a report, documenting the incident. From that point on, you stand the risk of being denied new bank accounts (either checking or savings) because of that incident. It’s also important to know that ChexSystems is a licensed debt collection service. So while there are banks that will open checking and/or savings accounts if you’re in ChexSystems, the company itself is legally authorized to take the necessary measures to collect the amount that you failed to pay the bank that reported you.
How long does your information stay on ChexSystems? When you get reported, the information that is submitted to them remains on your file for at least five years. There are typically two ways for that information to be deleted before five years. The first one is if the bank or credit union that reported you in the first place, requests that the information be removed (more on that later); the second way is if ChexSystems finds itself in a situation where they’re legally obligated to remove it. If you’re wondering about the latter case, it was stated at the beginning of this post that ChexSystems is a reporting agency. As such, it’s regulated by the FCRA (Fair Credit Reporting Act). This law allows you, the customer, to dispute any information that’s inaccurate or incomplete. If the reporting agency can’t come up with proof that their record is accurate after they investigate your dispute, then they’re legally obligated to delete said record.
Although most people pretend otherwise, the truth is that is you have an unpaid balance at a bank, they will try to their best ability to contact you and ask that you pay. After all, it’s their money. They will notify you through snail mail, email (if you have online banking with them), and by phone, in order to have you cover your negative balance. It’s only after a number of unsuccessful attempts at contacting you, or after contacting you and you fail to pay, that they will turn to their own reporting agency, which is ChexSystems. Let’s just say that since an estimated 80% of the banks partner with ChexSystems to verify new account openings, it’s something that seriously limits your financial options if you let it happen to you.
How To Find Out If You’re On ChexSystems’ List
Most people find out that they’ve been reported to Chexsystems in the most embarrassing way: they go to a bank to open a new account. Then the branch manager or customer service representative comes back to tell them that there’s a problem that’s preventing them from opening an account: the customer is on file with Chexsystems. You will typically be suggested that you try and work things out and then come back. Although that will be said to you with a smile, it doesn’t make it any less embarrassing.
The better (and more dignified) way is to stay on top of things by ordering your ChexSystems report from the company. You can order the report to learn what information, if any, ChexSystems, Inc. has about you. If you have been denied an account from a bank or credit union, and ChexSystems was used in the decision process, this information will help you understand what contributed to that decision. Once it’s in your possession, review it in the most thorough way possible. It will include the following sections: your name and “consumer identifier”, one or more items of “Reported Information” (this is the bad stuff that is being reported about your banking history!), one or more “Inquiries Initiated by Consumer Action” (these are things you have allegedly done that caused someone to pull your Consumer Report), one or more “Inquiries Not Initiated By Consumer Action” (these are reports pulled by others about you without your direct permission), one or more “Retail Information” items (from other check-writing databases such as SCAN), one ore more “History of Checks Ordered”, and then personal information about you, including your Social Security Number, and Drivers License.
How To Be Removed From ChexSystems’ List
As previously mentioned, under the FCRA, you have the right to dispute any error or inaccuracy in your ChexSystems report and ask for removal or correction of the information, because every item you successfully get removed from your report is a step in the right direction towards being taken off the ChexSystems list. After you have carefully gone through your report, line-by-line, you should then move on to the next step: writing and mailing a dispute letter. If your report shows information about debts that you owe to banks, and you know for a fact that you have paid those off, gather your proof as documentation to support your letter. For example, a receipt from the bank showing that you paid the debt, or an account statement showing that your negative balance has been paid off.
Your letter should include all the mistakes on your report, with your request that they investigate them and update your report with the correct entries. They have thirty days to process your request. Caveat: do NOT follow this procedure if everything that is on your report is accurate. This will count as a frivolous dispute and might even hurt you down the line.
In the case where, unfortunately, everything on your ChexSystems report is true, then your best bet is to call the bank(s) that you owe and offer to work something out. As long as you mention that you’re paying back what you owed, you’ll get their attention. Offer to pay off your unpaid balance; in case they agree (and they most likely will), then say that you will do it in exchange for them to request that your entry be removed from ChexSystems. Of course, in case they agree, this is something that you should get in writing, because ChexSystems might contact you asking for that specific proof.
And one last note which is actually common sense, if you’ve been reported to ChexSystems and have checking accounts that are still open, make sure that you do everything in your power to keep them open!
Banks That Do Not Use ChexSystems
If you can’t seem to catch a break no matter what you do, then you’re going to have to look for what’s commonly known as second chance checking accounts or second chance bank accounts, offered by banks that do not run a ChexSystems check when you apply for a checking account, or use it but still open accounts for you even if you’ve been reported. These institutions may strategically target the market segment of people with bad (or less than perfect) credit. In some cases, you’ll be put through a one-year “probation” period, during which you’ll be required to pay off your outstanding debts, before you’re allowed to have a full-fledged account.
A simple Internet search for “banks without chexsystems” or “non chex systems banks” will turn out a plethora of offers. You will have to use common sense and perform some due diligence in order to navigate these offers and separate the wheat from the chaff. While the fact that 80% of the banks choose to partner with Chexsytems when it comes to opening new checking accounts may seem insurmountable, that also means that there’s a full 20% of them that doesn’t, and that’s where you’ll be looking. But before you go ahead and start doing business with a company that claims to offer a non chexsystems, second chance checking account, run the following tests and make sure that it passes them:
- Make sure it’s an FDIC-insured bank. Opening a bank account with a bank that’s not FDIC-insured is very risky, since in the event that this bank goes under, you will lose all the money that you had with them. You can then easily see why it’s an important thing to verify. The insured limit was previously $100,000 per person per bank but it has recently been upped to $250,000 amid the recent cascade of bank failures, in order to re-assure depositors and avoid a run on the banking system.
- If it’s a credit union, make sure it’s NCUSIF insured. The NCUSIF is the credit unions’ equivalent of the FDIC. You should check it for the same reasons stated above. Enough said.
- It helps if the institution has a brick-and-mortar branch. There are online banks that do not use ChexSystems, but there’s nothing quite as re-assuring as walking into a bank’s branch. Such institutions are almost always more reliable than strictly online ones, although legislation has tightened to protect customers and make online banks more legitimate.
- Do some background work on the bank. Perform a WHOIS on the bank’s domain name: if it’s registered to a person and not a corporation, you should be concerned. Look on the bank’s web site. There should be separate telephone and fax numbers, and a legitimate street address – not a PO box. You can always call 411 to confirm that the telephone number matches the address listed, while keeping in mind that some banks have a central location where they answer general calls.
- Make sure the bank DOESN’T require you to use direct deposit in order to open the account: if you switch jobs, and no longer receive your checks through direct deposit, then you’re basically back at square one.
- Make sure the institution doesn’t charge you for common items like monthly statements, telephone services, and withdrawals, options that are normally provided for free through regular banks and credit unions.
2020: Updated List of Banks That Don’t Use ChexSystems:
TD Ameritrade offers brokerage services, with perks that include a checking account. So it’s a bit of a roundabout way to get around ChexSystems. They’re not a bank, so they don’t need that kind of screening, and you can usually get approved for a Cash Management checking account. After you open a brokerage account, they will review your account and make a decision on checking account privileges. If approved, you get a checking account with no monthly fees, and all the perks that usually come with a regular checking account (debit card, online bill pay, etc.)
BBVA Online Checking
The BBVA Online Checking Account is consistently at the top of recommendations for people dealing with Chexsystems issues, primarily because it is available in all states (with the exception of Alaska and Hawaii). The Easy Checking account offers free checking, mobile deposits, online banking, bill pay, check writing, Visa debit card and more. BBVA is the rare full-service bank to offer second chance checking accounts, which means you have access to plenty of other services like mortgage loans, car, personal and business loans, unsecured and secured credit cards plus savings, money market and cd accounts. The trade-off is a $25 minimum opening deposit and a $13.95 monthly service charge.
SoFi Money Cash Management Account
Another brokerage firm offering checking account privileges: The SoFi Money Cash Management Account is offered by SoFi Securities LLC, a FINRA registered broker dealer. Similar to Ameritrade, the account allows for deposits, check writing, online bill pay, and transfer money. There is no minimum balance requirement, and on top of that there’s an opportunity to earn a $25 cash bonus by funding the account with $100 or more within 14 days of opening.
Chime Spending Account
With Chime, what you get is something that looks and functions like a checking account. It comes with a mobile app and debit card with no monthly fees, no overdraft fees, and no minimum balance requirements. You get access to a network of over 38,000 surcharge fee-free ATMs, as well as direct deposit. Icing on the cake: $50 bonus when you receive a payroll direct deposit of $200 or more within the first 45 days of opening your account.
A great option as a non-chexsystems bank, Axiom offers the Opportunity Checking account to those who are in need of a second chance checking account. Headquartered in Central Florida, this community bank offers an account with no minimum balance requirement, a debit card (upon approval). The conditions for opening the account include a $12.95 service fee and a $25 minimum opening deposit. It’s worth pointing out that the service fee can be lowered to $8.95 per month with direct deposit
If not for limited locations, this bank would be one of the finest options for a second chance checking account. Currently, there are branches in Maryland, Ohio, Pennsylvania, Virginia, West Virginia, and Washington D.C. United Bank’s Gateway Checking account does not require a ChexSystems check.There is a $50 minimum opening deposit for all personal checking accounts, but there is no minimum balance requirement or monthly service fees.
US Bank offers a non-ChexSystems option with the Easy Checking Account. Like most others on this list, it consists of a basic checking account that comes with standard benefits like a debit card that doubles as an ATM card. Nothing extra fancy, the appeal here is access.
Capital One 360 Checking
Certain major banks have identified the business opportunity, and on a case-by case basis, do offer second chance checking accounts. Capital One is one of them. For their Capital One 360 account, they do consider your ChexSystems report, but their approval process includes a couple other factors to make a decision. It helps if you have a good credit score and have not committed bank fraud.Capital One doesn’t base its approval on ChexSystems alone, according to eCHECK.org. Chances are, if you have a good credit score and have not committed bank fraud, you’ll be golden.
With a rather steep opening deposit requirement of $100 (compared to others on this list), Suntrust offers second chance accounts options, with online banking, mobile banking, overdraft services, direct deposit, bill pay and a SunTrust MasterCard® Check Card. Apparently, there is some debate over whether they use Chexsystems to screen applicants or not. The bank’ official line is that they don’t, but people have repeatedly claimed that this statement is not true. You can either pay a $7/month service fee. Or meet certain requirements to have the fee waived (10 transactions a month, or $500 in monthly deposits, or a $500 average balance).
Why Non-Chexsystems Banks Matter
Banks that do not use ChexSystems, (either online or brick and mortar) are important because for many people who are unfortunate to be on ChexSystems because of a few bad decisions, they’re the only chance to open a second chance checking account. Being without a checking account is financially crippling and a major inconvenience. Fortunately, most states have local banks that offer second chance bank accounts and you can get around the Chexsystems penalty.