Why do most financial institutions in the USA use Chexsystems for consumers who want to open up a bank account? Because the account verification services provided help the banks lower the potential risks involved. Many consumers have experienced problems with bank accounts in the past, with overdrafts, closed accounts due to insufficient funds, and sometimes even bank fraud or suspicious activities. Financial institutions want to verify that the consumer trying to open an account will not run up large fees and write out bad checks.
Consumers who have a prior history of poor account management and financial problems are much more likely to run into trouble with a new account as well. Banks make a lot of money every year on overdraft fees and other charges that are a result of poor money management and budgeting. Some consumers make these activities a habit though, and this means that the bank could end up not being able to collect what is owed.
When a consumer is reported to Chexsystems by the financial institution this record is kept for 5 years. Any time during this period that the consumer tries to open up a new account the bank will be alerted to the prior activities on record. This is only true if the financial institution in question uses the account verification service, but more than 80% of the banks in the USA do. However, it should be added that there are still some Non-ChexSystems Banks that do not use this database.
Identifying high risk consumers helps banks and other types of financial institutions keep costs low for all customers. Losses that the bank has to absorb can increase the costs of the services offered to other customers who have accounts, and some very small banks could go under if the losses are too large from customer defaults in any given year.
A majority of the financial institutions use Chexsystems to weed out undesirable consumers who may be out to commit fraud on the bank or credit union, as well as consumers who have very poor money management skills and tend to get into trouble with managing the account. Many banks use the service as just one of many tools utilized to determine whether to allow a consumer to open a new account.
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