You've been flagged by ChexSystems. Now what?

By Peter Andrew

Given that the story of my personal finances has been punctuated by small and not-so-small disasters, it's pretty amazing that I've never been flagged personally by ChexSystems. But for those who have been flagged by the company, is there any hope of clearing the record and regaining access to most checking accounts?

What is ChexSystems?

ChexSystems is like a credit bureau in that many financial institutions check with it before opening new accounts. Also like those bureaus, it's a "consumer-reporting agency" under the Fair Credit Reporting Act (FCRA) and some other federal laws.

However, there are some important differences between ChexSystems and a credit bureau. ChexSystems doesn't continually monitor a range of your accounts for late payments and other minor delinquencies. Nor does it deal in credit scores.

Instead, it maintains a register (some might call it a blacklist) of people who've fallen foul of their banks or credit unions. If a financial institution closes an account of yours because it's wearied of your numerous unauthorized overdrafts, or because it's given up on you ever paying off what you owe, or because it suspects there's some form of fraud associated with your activities, there's a good chance it will report the matter to ChexSystems.

Some sources suggest that about 80 percent of banks and credit unions use the company to register customers (more usually ex-customers) whom they regard as bad risks, and roughly the same proportion use it to check on people wanting to open new accounts. Of course, no financial institution is obliged to decline to open an account based on a ChexSystems listing, but you can be pretty sure nearly all of them do. So you really, really don't want to find yourself flagged.

Removing a ChexSystems flag

But let's suppose you have been. What can you do then? Here are seven things to remember:

1. Don't expect a happy or easy experience. The Internet is littered with forums where consumers complain about not being able to get through to anyone at ChexSystems' call center. Those who have reached human beings often claim those agents have been unhelpful and even rude.
2. You're entitled to a free copy of your report by mail. You can ask for one through the company's website.
3. It helps to have the truth on your side. If the listing is factually wrong, ChexSystems is legally bound to correct it.
4. Be prepared to fight if there's a dispute. If you and the financial institution that reported you (the "reporting institution") disagree over the facts of your case, you're probably going to have to go through a lengthy appeals process -- and could even end up taking the matter to court. Gather together copies of supporting documents (bank statements, correspondence, police reports and so on) that could help you prove your case. Keep copies of everything, and use a signature-required mail service.
5. Be wary of removal promises. If your old bank or a collection agency promises to remove your listing provided you pay up, don't automatically believe it. Get that promise in writing. Also, a written undertaking from a collection agency is worthless. It must be from the reporting institution.
6. Time can heal your status, but ... Your listing should be erased automatically after five years, but there's a catch. Suppose you have a debt from 2010. It should be removed from your record in 2015, but if you pay in 2013, that fact may also be recorded -- and could allow the incident to remain current until 2018. Use this as leverage when you're negotiating repayment: You want a promise in writing from the reporting institution that it will delete the record.
7. When all else fails, state your case. If, after exhausting the appeals process, you're still not happy with your listing, you are entitled to add a consumer statement of 100 words or less (200, if you're in Maine) to your record. Use that to explain your side of the argument. Still, how much difference it's going to make to any bank you approach in the future is anyone's guess.

Not the end of the world

Does all that sound daunting? It doesn't have to be. Plenty of consumers resolve ChexSystems issues every day, often with a minimum of fuss. Problems usually arise when the reporting institution refuses to accept your version of events. Unless you can prove the information it provided is factually wrong, you may be stuck on the "blacklist" for at least five long years.

But even that isn't the end of the world. Consider secured credit cards, some of which may be available despite a ChexSystems listing. And some prepaid cards now offer bank-like services, such as bill payment and direct deposit. A number of these offer good value, but many others can be very expensive. Make sure you examine all the fees associated with a card before you purchase it.

But, if you choose wisely, you may be able to walk calmly from your experience with ChexSystems and never look back.