Is ChexSystems Needed?…My Thoughts
August 14th, 2006Although I’ve had my share of bad experiences with ChexSystems, I would like to remain impartial for the sake of fairness. To endure 5 years on the ChexSystems blacklist is a difficult task. And even more difficult if you were reported for something so minor.
The question I want to explore is: “Is ChexSystems a necessary organization, and is it fair?”
To answer the first question, I do think ChexSystems is necessary in the banking industry. The primary reason being that it helps protect businesses and banks from losing its assets. Credit card companies and other creditors rely on the 3 credit bureaus to monitor peoples’ credit, and I think it is only fair that banks have the same type of protection available to them. Could you imagine how much money banks would lose to fraudulent activity, or how many businesses would go bankrupt if not for ChexSystems?
Is ChexSystems fair for listing people for up to 5 years? Probably not. However, on the other hand, one might argue that if a negative item can remain on a credit report for up to 7 years, then it should be justifiable to hold a ChexSystems record for up to 5 years. Though this statement makes sense, I do think there is a big difference between a ChexSystems report and a credit report. A mark on ChexSystems usually means you’ll be blacklisted from most banks and credit unions for a period of 5 years. In contrast, a negative mark on your credit report usually won’t deter anyone from receiving credit. There are literally thousands of offers out there that allow you to have bad credit. However, there are only a handful of banks that will do business with someone with a record on ChexSystems. In addition, the effects of negative marks on your credit report start to diminish within a couple of years. While, the negative effects of a ChexSystems record remains strong through the entire 5 year duration.
In my opinion, ChexSystems should consider coming up with alternative reporting methods in order to cater to the various types of consumers out there. For example, giving a 5 year sentence to those individuals who have severe offenses such as fraud or account abuse. And, a lesser punishment to those with minor offenses such as NSF’s and small check bounces. The punishment may be in the form of a written warning or a reduced listing term; perhaps 6 months to a year.
