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Blog: Paper Doll, Tackling The Stacks And Piles
Who Knows Your Secrets? Part 2: Checking Up on Your Checking History

Last week, we revisited how to protect your paper trail of personal information from identity thieves, and also talked about all the different ways other institutions (besides your creditors) can sneak a peak at your credit history.

But wait, there's more!  (Lots more!)

You already know that the three credit reporting agencies (Equifax, Experian and Trans-Union) keep track of all the activity on your credit cards, mortgages, loans and medical accounts. But they aren't the only ones checking out how and where you spend your money. For years, two companies, TeleCheck and Chex Systems, have been tracking negative consumer checking activity and reporting the information to banks, credit unions and other financial institutions. They also serve retail companies, verifying the validity of checking accounts and helping calculate risk associated with checks written to merchants.

According to a 2008 Identity Fraud Survey Report conducted by Javelin Strategy & Research, "new account" fraud cost the financial services industry $14.7 billion in 2007 and cost the victims an average of $1,066 per case. Thus, it's understandable that banks seek help to screen applicants for new bank accounts for any kind of history of abuse or financial fraud. Because retail stores suffer from account fraud as well, they require services for verifying identification and dealing with risk management.

That's where TeleCheck, Chex Systems, and one newcomer, EWS, come in.

Chex Systems operates as both a check verification system and a consumer credit reporting agency (and as such, is governed by the Fair Credit Reporting Act, as we discussed last week), collecting and reporting data regarding consumer banking habits, bounced checks, overdrafts, deposits of fraudulent checks, and general suspicious account activity.

Approximately 80% of U.S. banks and credit unions subscribe to one or more of the Chex Systems reporting services to help them determine whether you will be allowed to open a checking or savings account. Just one negative item in your Chex Systems profile will likely close bank doors to you, and negative reports stay in your profile for up to five years.

Also, many consumer advocates have concerns about Chex Systems' practices, claiming that unlike Equifax, Experian and Trans-Union, which collect and report both positive and negative elements of a person's financial history, Chex Systems reports only negative data. Various websites and blogs, such as StopChex.com, have been developed to help consumers deal with issues related to Chex Systems and to identify banks that do not use Chex Systems' services.

TeleCheck, a FirstData company, operates check verification and risk analytics services for retail stores, utilities and other organizations. For most people, their first awareness of TeleCheck might come if a cashier reports that a check transaction has been declined. The cashier will then give the customer a "courtesy card" with a contact number for TeleCheck, a seven-digit record number for the transaction, and a code to help TeleCheck determine the reason for the decline.

The frustrating thing for many consumers is that while TeleCheck does not provide the cashier (or even the retail establishment) with any information regarding a person's bank balance, it still feels like a stinging rejection. The customer may have a history of bounced checks...or it could merely be the result of TeleCheck not having enough information about the customer on file!

TeleCheck's computers have various "risk models" in place to analyze transactions, and if TeleCheck lacks the data to make any predictive risk assessment, any check processed via TeleCheck will be declined. (It's like rejecting any and all prospective computer dating matches if no photo is supplied...only it's done in public, while you're in line, surrounded by friends, neighbors and cranky shoppers.)

If there's nothing actually wrong with your checking history, TeleCheck claims they can "help you establish a positive file" by providing them with the record on the courtesy card, your driver's license information, the bank routing and account numbers at the bottom of the check, and, if a bank (rather than a retail outlet) rejected the check, your Social Security number, as well. As of yet, there's no request for blood type or preferred pizza toppings.

It's bracing to think that a company you've probably never heard about can wield so much power. However, an advantage of TeleCheck seems to be that if there is some question regarding unpaid check debt, once the vendor confirms that the debt was paid (even if you did originally make a banking error), TeleCheck will remove the item from your record. (Otherwise, records of unpaid check debt stay on your TeleCheck profile for seven years.)

Early Warning Services, or EWS, the new kid on the block, was created as a jointly owned venture of Bank of America, JPMorgan Chase, BB&T Corporation, Wachovia, and Wells Fargo. Like Chex Systems and TeleCheck, EWS also collects data about consumer banking activity, primarily bounced checks and excessive overdrafts.

You might think that if you've never bounced a check, you'd be safe. It isn't quite that simple.

The problem?  As with credit histories, the information being collected about you may be incorrect, either because of the nefarious activity of someone who has stolen your identity or merely because someone along the financial food chain mistyped a digit and linked your good name with someone else's checkered past.

What can happen if erroneous information (either due to identity theft or clerical error) gets included in your TeleCheck, Chex System or EWS profile? Retailers could refuse to accept a check you present for payment. 

Imagine the embarrassment of finally getting to the front of a checkout line to buy a week's worth of groceries or a whole slew of holiday gifts, presenting your check and identification, and having the cashier call over the manager to explain, in a voice loud enough for the people behind you to hear, that your check will not be accepted.

Or, imagine being dissatisfied with your current bank, or moving to a new city and needing to open up an account with a bank with local branches, only to find that your bank of choice is refusing to open a new account because of so-called negative activity in your profile.

In the past, someone with a spotty banking history could shop around for a small bank or credit union that did not subscribe to the Chex Systems or TeleCheck services. However, with the advent of EWS and the increased need for financial institutions to fight fraud, it's highly unlikely that someone with a damaged record would be able to either beat the system or blissfully ignore trouble caused by an identity thief. Thus, as with checking your credit reports (and score) annually, it's essential you know who knows your checking "secrets".

To obtain free copies of your reports, go to:

Chex Systems and then click on "Order Consumer Report" and follow the prompts.

TeleCheck and then click on "TeleCheck Consumer Assistance". Then click on "Request Your TeleCheck File Report", select "Annual File Report" and provide the requested information.

Early Warning Services Call 800-325-7775. Currently, there's no way to request a copy of your report online.

Of course, just ordering these reports and not doing anything about them is about as helpful as buying exercise DVDs and putting them on a shelf. Carefully review each entry and dispute any errors, both with the reporting agency and, if applicable, a merchant or creditor. The Fair Credit Reporting Act requires that reporting agencies take action within 30 days to investigate the errors you report, so mark your calendar, stay alert and be vigilant about correcting any inaccuracies.

To keep negative items from appearing in your Chex Systems, TeleCheck, or EWS profiles , you'll want to take the following precautions:

1.  Balance your checkbook. Yes, really. Financial responsibility begins with knowing how much money is in your checking account. Reading your monthly statement (or checking it periodically online) and reconciling with your own records makes it far more likely you will catch near-overdraft balances and incidences of identity theft.

2.  Understand that there's no such thing as "float" anymore, especially since the 2003 passage of the federal Check 21 Act. Assume the money is gone from the account the moment you write the check, instead of hoping it will take a few days for a transaction to be finalized, and you'll eliminate your risk of overdraft.

3.  Know that deposits will not always clear immediately. If you deposit one check and write another check on the same day, don't assume the deposit will be credited to your account before the check you wrote gets debited.

4.  Know your bank or credit union's policies regarding crediting and debiting accounts. Many banks have a policy of applying daily debits from largest to smallest. In such cases, you are far more likely to have multiple overdraft fees (which further decrease the balance in your account).

Let's say you have $2500 in your account. In the span of two days, you deposit $1500, write checks for $1800 for your mortgage, $300 for your insurance payment, and $100 for utilities, then made four ATM withdrawals of $50, four debit card purchases of $25 and five of $5 each. If your bank tends to hold deposits even two days, your total amount debited would be $2525, or $25 more than your balance (as your deposit would not yet have been credited). However, if your bank processes daily checks and debits from highest to lowest, each of your $5 purchases would incur an insufficient funds fee of, for example, $39. Thus, instead of having a negative account balance of $25, you'd have -$220. Ouch!

5.  Don't close any checking account until you make sure all checks have cleared and that you've canceled all repeating auto-drafts, automatic transfers and/or debits, and that you've paid all applicable bank fees.

6.  Notify your bank if replacement checks you've ordered fail to arrive, or if the box(es) appear to have been opened, even if no checks are missing. Identity thieves find sneaky uses for the information they purloin; you'll want to change your bank account number right away.

Finally, if adverse information in your Chex Systems, TeleCheck, or EWS profiles is the result of your own past financial mistakes (other than fraud), there is an alternative that will help you erase your blacklisted status and open a checking account.

Checking Network USA, an FDIC partner, offers a series of classes and workshops on financial responsibility. If someone takes and passes the courses (whether online or in a classroom setting) and is granted certification, checking account access to Checking Network USA's partner financial institutions is eased.

See you next week, for more in our ongoing series on who knows your secrets and who is following your personal paper trail.

posted on: 10/27/2009 10:30:00 AM by Julie Bestry
category: Paper

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Discuss This Post

by Sara on 10/27/2009 3:58:37 PM:

I had no idea that there was such a system for checks. On the other hand I almost never write checks as I automate all my deposits and bills as much as possible and use credit card for all other spending so I can to get cash back - I wonder if I'm even in the system! I shall go and see :)

by Paper Doll (Julie) on 10/27/2009 4:12:27 PM:

Sara, even if you do automatic bill-pay, either through your bank or through transactions scheduled at a vendor or utility company's web site, TeleCheck, Chex Systems and EWS are monitoring your activity. If you've had no negative activity, then your file might be so clean that you could have a check rejected because there's not enough informational "dirt" on you. There will be more posts in this series on how to get reports to find out who *else* is keeping track of you! Keep reading, and thanks for the comment.

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Paper Doll, Tackling The Stacks And Piles

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