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ChexSystems is an eFunds check verification service and consumer credit reporting agency like Innovis, Experian, Equifax and TransUnion. While most credit reporting agencies broker data about how a consumer handles credit relationships, ChexSystems provides data related to how a consumer has handled deposit accounts at banking institutions. It is owned by Fidelity National Information Services.
Eighty percent of all commercial banks and credit unions in the United States use ChexSystems as a step in the consumer checking or savings account application process. eFunds claims that their services are used in over 9,000 banks, including over 100,000 individual bank branches in the United States. The ChexSystems products offered by eFunds are DebitBureau, DebitReport, FraudFinder, Identity Theft, ID Verification, ICMS, ProspectChex, QualiFile, and Transaction Monitoring.
A consumer's ChexSystems report typically contains banking irregularities such as check overdrafts, unsatisfied balances, depositing fraudulent checks, or suspicious account handling that other banks have reported in the past five years. The majority of banks using ChexSystems will not open a new deposit account for a customer that has a negative item reported. In 1999, ChexSystems was successfully deemed a consumer reporting agency, and therefore, governed by the Fair Credit Reporting Act. Consumers are now able to retrieve a free ChexSystems report annually, which allows them to dispute negative items and demand proof of the data contained in the report.
While eFunds claims to provide fraud prevention products to the general public, many have criticized the company for what they consider to be unfair reporting practices. For instance, while many CRAs report both positive and negative account histories, ChexSystems reports only contain negative information. In comparison to traditional CRAs, ChexSystems does not provide a risk analysis score like the FICO score; therefore many consumers who have kept positive banking relationships for as many as 30 years may have their accounts closed and be blacklisted from opening new accounts based on a single banking error. The Greenlining Institute has published a report indicating wide disparities in the criteria banks were using when reporting negative items to a consumer's ChexSystems report.
Beginning in August 2000, the Greenlining Institute, a public policy center headquartered in San Francisco, and the Federal Reserve Bank of San Francisco held four meetings to discuss possible reform in the treatment of individuals reported to ChexSystems. These meetings included a discussion of potential best practices which a financial institution could implement to reduce its dependence on ChexSystems data in its decision process on opening accounts. Practices identified include:
Since the meetings at the Federal Reserve Bank of San Francisco, all participating financial institutions have announced that they will implement positive changes in the way they use ChexSystems. In September 2000, Bank of America was the first financial institution to announce specific changes in its use of ChexSystems. Revised practices include:
During a December 2000 meeting, Bank of America reported that in the first two months under the revised standards, its new ChexSystems policies had resulted in approximately 1,800 ChexSystems "overrides". This allowed 1,800 individuals to open deposit accounts that would have been denied under the bank's former policies. Best practices to address the barriers ChexSystems reports may create for low-and moderate-income individuals include:
Some banks that use ChexSystems also utilize the services of Early Warning Services, LLC, a fraud prevention and consumer reporting agency owned by Bank of America, BB&T, JPMorgan Chase and Wells Fargo.