ChexSystems, as Downey would soon find out, is a national consumer reporting agency — abbreviated CRA — that specializes in gathering data on how Americans use checks and bank accounts. It distills this information into a score similar to a credit score. Some 80% of banks rely on such information to screen people who want to open new accounts.
“I think this is complete nonsense,” Downey says of the reporting system. “People don’t even recognize it exists. It’s not easy to interpret, it’s not easy to change, and it’s completely arbitrary.”
Most of us are familiar with Equifax, Experian and TransUnion, the big three credit bureaus behind our credit reports and scores.
Critics of ChexSystems note the agency generally tracks only negative information like account closures and overdrafts, essentially making it a bank-account rap sheet. The company is just one of a large — and largely unknown — sum of CRAs that actively monitors the financial and nonfinancial behavior of more than 200 million Americans, including many children.
The 52-year-old flight paramedic had just been denied access to opening an account at the lone bank in town because his so-called ChexSystems score was too low. He just received the agency’s contact details from the teller. He left the bank puzzled as he did so.
On a scale of 100 to 899, Downey’s ChexSystems score was 553. As far as the sole bank in Mancos was concerned, those three digits — regardless of his 15-year-long relationship with his current out-of-state bank — meant he was too risky to take on as a customer.
But that’s barely scratching the surface.
“There is a very large web of these different types of consumer reporting agencies,” says Ariel Nelson, a staff attorney at the National Consumer Law Center (NCLC) who specializes in consumer reports.
Nobody knows exactly how many agencies there are because there’s no federal registry overseeing them, Nelson says. Her best guess? It’s likely in the thousands — at least. Our ‘financial surveillance’ system
Rent a home. Bounce a check. Return an item to a retailer one too many times. Miss a utilities payment. Make a utilities payment. Change jobs. Apply for health or property insurance. Get a raise.
In any one of these everyday scenarios, there’s a good chance your information is being logged, cross-referenced, bought, sold and scored among a sprawling network of consumer data brokers. And that data can be used against you when it comes time to apply for a loan, land a job, rent a place to live and even innocuous things like sign up for a new phone plan. For Downey, ChexSystems stood between him and a local bank account. When we spoke in the spring — months after he first ran into these problems — Downey still hadn’t gotten a hold of ChexSystems despite several phone calls.
Since cash is king in Mancos (this is Smalltown, USA, after all) he had to max out his ATM withdrawal limit for daily expenses using his out-of-state account. Inconvenient, yes. But he was grateful for the workaround. Others in his position — like the millions of unbanked Americans who don’t have a checking or savings account at any bank, out of state or otherwise — don’t have this option. Recent research from San Francisco’s treasury department shows that bank scoring disproportionately restricts low-income and Black Americans from opening accounts, amounting to what the authors call “systemic financial exclusion.”
Nelson, of the NCLC, welcomes the change in rhetoric. “These companies are becoming the gatekeepers to essential things in our lives,” she says.
Director Rohit Chopra, who’s helmed the CFPB since May 2021, has worked to shift the federal agency’s tone towards consumer reporting. In news releases and advisories, it now calls CRAs “financial surveillance companies.” And the reports they peddle? Those are “dossiers.” The federal government is taking note, too. The Consumer Financial Protection Bureau, or CFPB, is cracking down on consumer reporting agencies, and not just at the big three credit bureaus. Niche companies like ChexSystems are now getting scrutinized, too.