Critics say ChexSystems errors hurt consumers

Wednesday, August 16th 2000, 12:00 am
By: News On 6

By Katie Fairbank / The Dallas Morning News

Jean Shake of San Antonio didn't understand it when she was denied a new bank account last year.

She became even more confused when the banker explained why: A national database had reported unpaid, bounced checks against accounts bearing her Social Security number in Oklahoma and Missouri. Ms. Shake has never opened bank accounts in those two states. But she had no luck persuading officials who run the database – known as ChexSystems – from removing the information.

"No one would return my calls," said Ms. Shake, 56. "I sent them faxes. This went on and on and on. It was, 'Well lady, you've got a problem. Too bad, so sad.'"

She eventually filed a complaint with the Texas attorney general's office against ChexSystems, which is run out of Minnesota and maintained by eFunds, a publicly traded company.

She's not the only one who wants ChexSystems to change its ways. A lawsuit filed in Los Angeles is also taking on the database, and a Web site – – is acting as an unofficial clearinghouse for complaints. The critics say that bad information in a ChexSystems file can get a depositor blacklisted among the 86,000 banks and other financial institutions that subscribe to the database. The ChexSystems client list includes 80 percent of U.S. banks.

"If they've made a mistake, you're in big trouble," said Ed Mierzwinski, consumer program director for the U.S. Public Interest Research Group. "It puts you in a black hole, and it's almost impossible to get out."

Public relations director Terry Blake of eFunds said ChexSystems only reports information and doesn't instruct banks on how to interpret it. The database also doesn't differentiate between a bounced check and a possible victim of fraud, such as Ms. Shake.

"We can't categorize it in that way. We don't segment the information," Mr. Blake said.

And not all banks that use ChexSystems will deny an account to someone with negative information in the database. TexasBank, which has 21 branches in North Texas, considers all accounts on a case-by-case basis, said Lea Ann Weddel, senior vice president of retail operations.

"Nothing is cookie cutter," she said. "We try to be flexible."

An answer to fraud

ChexSystems was set up to stem fraud, a huge concern in the banking industry, which tallied more than $500 million in check-fraud losses in 1998, according to the American Bankers Association.

eFunds, which runs a 400-person call center in Dallas, began to grow in the early 1990s after a new law required bankers to process checks more quickly instead of holding them to ensure they are good.

Bankers feared their fraud losses would grow because of the legislation and looked for ways to prevent that. As a result, bankers say, it makes sense to deny checking accounts to anyone with a black mark on their record. Today, ChexSystems has about 7 million names on file.

Consumers stay on the ChexSystems list for five years. And unlike a credit report that must list both positive and negative information, ChexSystems only reports problems.

"You should have the same dispute rights as with a credit report," Mr. Mierzwinski said. "The problem with this is clear. You're only in it if the information is negative."

Consumer advocates say that means the wrong people may be punished.

"That situation is stifling to an individual who might have one mishap," said Carol Brandon, a loan counselor in Dallas with Acorn Housing Corp., a nonprofit group that educates homebuyers. "... Suppose you make one mistake and you're held hostage for five years?"

Without checking accounts, consumers are forced to use more expensive check-cashing services, which charge 1 percent to 6 percent of a check's value, and buy money orders or use cash to pay bills.

"A checking account is a fundamental tool," said Rob Schneider, a lawyer for Consumers Union in Austin. "If you don't have one, it makes living in the modern world difficult. It really adds insult to injury to be added to a database that's going to exclude you from getting another checking account."

The ChexSystemsBites Web site tries to help those who have been denied a checking account because of ChexSystems information. The site, run by volunteers, provides information about ChexSystems, gives directions on how to complain about the company and helps steer people to banks that consider accounts on a case-by-case basis. TexasBank, for example, is rated "good" by ChexSystemsBites.

Need for refinement

Ray Chambers, an assistant vice president of information technology at the University of Louisville, said ChexSystems needs to refine its methods. Mr. Chambers was denied a new checking account in May because of a $29 bounced check drawn on a Lexington, Ky., bank.

"I've never lived in Lexington. I've never banked in Lexington. It didn't make sense," he said. "What do I have to do to get them to stop this inaccurate reporting?"

He has written letters to ChexSystems, sent faxes, called and finally filed a complaint at the Texas attorney general's office. The Texas attorney general is handling complaints from all over the country because the eFunds division that handles such complaints is based in Dallas.

"They [eFunds] are required to reinvestigate. They're required to give me a report, and they're required to stop reporting that information unless they verified it," Mr. Chambers said.

"They're flouting the law. They absolutely refuse to adhere to the Fair Credit Report Act. They've sent me 20 or 30 documents, all citing the act, and they just ignore it."

Mr. Chambers said the case has been an annoyance more than anything, but he knows that many people might not have his financial resources.

" I have the sense to know what I should do," he said. "And I couldn't do it. They're flouting the law."

Ms. Shake's battle against ChexSystems had more serious repercussions. Until she found a bank that would allow her to open an account and cash a check, she had to rely on loans to pay for her car insurance and the prescriptions she needs for high blood pressure and a heart condition.

"This was a life-threatening situation," she said.

She later found that a man had been misusing her Social Security number to open up accounts and write bum checks.

But she doesn't know whether her record has been cleared with ChexSystems.

"You get in a loop and you can't prove it wasn't you and they won't take you off the list," she said. "They really put me through the meat grinder, so to speak."