This site is all about how to survive and function as a normal member of society even though you have been reported to Chex Systems. But this article is specifically about why banks use ChexSystems.
Having worked in retail banking for over 10 years I will tell you plain and simple. Banks use Chex Systems because it saves them money. When I would review study after study the one solid conclusion was that the odds of losing money on a Chex Systems customer was much greater than the odds of losing money to a customer that was not on ChexSystems. This has transformed over the years into a a good indicator and back in the early 1990′s I am not convinced it was as good an indicator as it is today.
For example. In the early 1990s you could get put on Chex Systems for simply having too many bounced checks. Even if you made good on all the fees the bank manager could close your account and report you. This, I was told, was to protect the image of the institution. They did not want there bank name on checks all over town that had bounced.
I always wondered that if the bank was so aggressive on charging for each and every money order – why not just let the people bounce the checks. After all each bounced check brought in ($15) I know fees these days are as high as $50 but back then it was a little different. Finally many banks began to see the light. They suddenly discovered what the low level employees knew all along. Bounced checks bring in fee income. Fee income is a driver of profits even though many misguided banks seek after interest spreads but I digress….
I worked at a branch in California that brought in over $100,000 per month in bounced check fees alone. That’s right! Not service charges, money order fees, mortgage interest – that was the straight number on NSF checks! What a racket I thought. This was because years earlier they stopped closing accounts and reporting people to Chex for bounced checks.
These days you usually end up on Chex for the primary reason that your account was over $100 overdrawn for more than 30 days. Do that and you are nailed.
The reason banks use ChexSystems is that if one bank has taken a loss on you then statistically the next bank may take a loss on you. What is ironic is that you can pay the bank $200 a month in NSF fees and make your account good for years on end and they collect thousands of dollars from you – but fall on hard times for 31 days and they close your account and report you. That’s crazy business but it happens to so many good people.
Most of this site is about what to do when this happens.