ChexSystems is one of several nationwide specialty consumer-reporting agencies that reports consumers’ checking account behavior. Unfortunately, ChexSystems account abuse is one of two major categories often used to categorize negative checking account activity.
What is ChexSystems Account Abuse?
ChexSystems account abuse occurs when a bank customer fails to comply with terms in their deposit account agreement. Here are several examples:
An unpaid overdraft occurs when you make a transaction that exceeds the balance in your checking account. The bank may choose to pay the transaction and charge you an overdraft fee, or they may decline the transaction. If the bank pays the transaction, you will be required to repay the overdraft amount plus the fee.
Any banking account closure
- Inactivity. If you don’t use your account for a long period of time, the bank may close it. This is because banks have to pay to maintain accounts, and they don’t want to keep accounts that are not being used.
- Overdrafts. If you have a history of overdrafts, the bank may close your account. This is because overdrafts can be expensive for banks, and they may not want to take on the risk of you continuing to overdraw your account.
- Fraud. If the bank suspects that you are involved in fraud, they may close your account. This is to protect their customers and their own financial interests.
- Illegal activity. If the bank suspects that you are involved in illegal activity, they may close your account. This is to comply with anti-money laundering regulations.
- Non-compliance with account terms. If you violate the terms of your account agreement, the bank may close your account. This could include things like writing bad checks, depositing counterfeit money, or using the account for illegal purposes.
- Bankruptcy. If you file for bankruptcy, the bank may close your account. This is because they may not be able to collect on any outstanding debts that you owe them.
Banks typically have a grace period for unpaid fees, but if you don’t pay them after a certain amount of time, the bank may close your account.
Debit or ATM card abuse
Suspicious debit card activities and transactions can be considered account abuse ChexSystems. Plus excessive or false chargebacks will cause a bank to flag checking accounts. Chargeback abuse involves customers filing false claims without justification.
Excessive Non-Sufficient Funds (NSF) activity
When banks flag customer accounts for excessive NSF activity they have recognized a pattern of transactions that result in your account being overdrawn. This can happen when you make a purchase or withdraw cash that exceeds the balance in your account.
Checking account regularly being overdrawn
If you have a history of overdrafts, your bank may decide to close your account to avoid the risk of further losses. If the bank closes your account for being regularly overdrawn, you may not be able to access any money in the account or direct deposits for up to 30 days. If constant overdrafts is an issue for you, consider using a prepaid debit card. Prepaid card issuers typically don’t allow you to overdraft, transactions are simply denied.
Length of consecutive days overdrawn
When your checking account is consecutively overdrawn for a number of days, there are several actions the bank may take:
- Overdraft fees
- Late fees
- Account closure
- Damage to your credit score
Checks you deposit that are returned
Returned checks may cause your bank to take the following actions:
- Charge you a returned check fee that can range from $25 to $50 per check.
- Close your account.
- Report you to ChexSystems.
- Reverse the funds credited to your account and charge a fee. Banks are not obligated to honor a check that is not backed by sufficient funds.
While ChexSystems account abuse sounds awful, that notation is in no way as damaging as a ChexSystems suspected fraud notation.
How to remove account abuse from ChexSystems?
One of the most common ways to remove ChexSystems account abuse notations is through the dispute process. If your ChexSystems report contains errors or is inaccurate you can dispute those items.
Here are more options to remove account abuse from ChexSystems:
- Dispute directly with the bank or credit union that reported you. Under the Fair Credit Reporting Act (FCRA), banks must to conduct and complete an investigation within 30 days once they receive your dispute. The bank is required to provide you with a notice detailing the results of its investigation. If the bank fails to respond within the 30-day time period, they must remove the account abuse notation.
- If the notation is accurate consider paying what is owed and requesting the bank remove the record from your ChexSystems report.
- Contact the banking regulator in your state. They typically have online complaint forms to help consumers resolve issues. Find your state banking regulator here.
- Federal financial institution regulators like the Office of the Comptroller of the Currency manage complaints about commercial banks having the word “Federal” or “National” or using the title “N.A.” (National Association) in their title.
- The National Credit Union Administration manages complaints about federally-regulated credit unions
- It’s likely that your complaint is governed by the Consumer Financial Protection Bureau’s regulatory authority also.
- If efforts to remove ChexSystems notations, you may have to wait it out. ChexSystems will remove the account notation reaches 5 years from the report date
If you are unable to open a new account, consider a bank that does not use ChexSystems until your report is clear.
How to avoid getting flagged for ChexSystems account abuse?
It’s important to regularly monitor your checking account. Balancing debits and ensuring you have enough funds to cover transactions will often help avoid getting your account flagged.
Here are a few more tips to maintain a checking account in good standing:
Communicate with your bank. Work with the bank when overdrafts or return items occur.
Practice relationship banking. If you have a local bank branch, get to know the branch managers. They often the authority and latitude to override the bank’s policies.
Overdraft protection for a fee. Overdraft protection is an optional service that banks offer in order to help protect customers from having their checks, ATM transactions, or debit-card purchases rejected due to insufficient funds. This service typically comes with a fee.
Free overdraft protection. SoFi Bank also allows customers to overdraft its checking accounts up to $50 with no charge.
To understand how you ended up with ChexSystems records, you should also review how ChexSystems works.