A “fresh start checking account” is a bank account that you can apply for in case you have been banned from opening new checking accounts. This usually happens when your name is reported by a financial institution to Chexsystems, and the consequence is that you can no longer open a standard checking account. Bank accounts have no bearing on your credit score, but banks have their own system to keep track of who is a desirable client and who’s not. In that regard, Chexsystems is the banking industry’s watchdog, in that it compiles a database of people who, for various reasons have been reported by the financial institutions that they’ve had problems with in the past.

You may be reported if you have been identified as someone who is involved in fraud. In the majority of cases, though, people land on that list because of overdraft fees that have been left unpaid at one or more banks and they decided to close your account and report you. It can also happen that you don’t have an unpaid balance, but because you abuse your debit card or checking account (repeated overdrafts), the bank decides that you’re a risky client, closes your account, and reports you as a risky client.

Once your name is on the Chexsystems database, most banks out there won’t agree to open a checking account for you, and your name remains on the list for five years. We say “most” because there are banks that don’t stop at the Chexsystems report and will consider opening an account for you even with a negative Chexsystems record. They realize that everyone makes mistakes and give you a fresh start, so to speak, hence the name “fresh start checking account”. In reality, this is just a fancier name for “second chance checking accounts”; some people also call them “no credit check bank accounts”.

These banks that do not use Chexsystems will forgive past mistakes in your banking history and will allow you to open second chance checking accounts. These accounts vary in terms of what they offer and what restrictions you have to deal with, but in all likelihood you’ll get mostly everything you would have with a regular checking account. As you would expect, most banks that offer fresh start checking accounts place a certain number of restrictions on the features of said account.

Second Chance Checking Accounts

The good news is that most of the basic features of a checking account, such as ATM withdrawals, online bill payments and direct deposits are also applicable to second chance checking accounts. A good second chance checking account will come with a debit card with the Visa or Mastercard logo on it, online bill payment, direct payroll deposit, and in some cases even check writing privileges. You will most likely have to put up with a monthly service fee, but that’s a small price to pay when compared to the inconvenience of not having a checking account.

There are plenty of banks that offer second chance checking accounts, both in actual branches and online. You can get accepted very quickly, especially in the online ones. It’s even possible to find a local bank in your area where you can open a second chance checking account. Those banks are usually referred to as “non-Chexsystems banks” and they’re not that easy to find. Most of the time they don’t advertise it, out of fear that they’d get way more applications that they could handle. Be prepared to have to sit down and explain the origin of your banking problems with someone in the branch, very often the branch manager. In the event that you have unpaid balances at other institutions, they will almost certainly ask that you pay them off and come back with proof that you did so.

Before opening your second checking account, ask whether or not there’s a trial program: some banks can offer to put you on a trial, and after a set amount of months of good history (usually 12 months, sometimes less, but 6 at a minimum), you’ll be eligible for a regular checking account. Banks that offer fresh start checking accounts are important because for many people with bad credit, it’s the only way for them to have access to basic financial services at a reasonable cost.

© Fresh Start Checking Account

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What Is ChexSystems And Why Do Banks Use It?

ChexSystems Inc. is a reporting agency that provides a continually updated deposit account verification service to its members, which are banks, credit unions, and other financial institutions (there are few banks that do not use ChexSystems). This network of financial institutions all contribute information to the company concerning negative information on checking and savings accounts. This information is then shared to assess the risk tied to prospective customers opening new accounts and to screen out applicants that they’d rather not have as clients. For instance, people who repeatedly write bad checks have their information recorded in ChexSystems, since the service helps the financial institutions to be aware of fraud and other attempted abuses of the system. Viewed from this angle, it’s a very useful service.

Yet it is entirely possible to end up in ChexSystems without engaging in criminal activities. If you had a checking account that was overdrawn and failed to pay the negative balance in time, it’s very likely that the bank will report the incident to ChexSystems. It’s important to point out, though, that ChexSystems itself does not actually have the power to deny or accept a given account. The decision to report you relies solely on the financial institution, who forwards the names and addresses of account holders whose accounts have remained unpaid. All they do is provide your financial history to financial institutions to which you apply to allow them to make an informed decision. But since Chexsystems is also licensed as a debt collection service, they are allowed to take the necessary measures to attempt to collect that debt.

Every report that is submitted to them remains on file for at least 5 years, unless the financial institution that originally reported the information requests that it be removed, or ChexSystems becomes obligated to remove it under applicable law. Just to clarify the latter case, ChexSystems, much like the three major credit bureaus, is regulated by the Fair Credit Reporting Act. This law (the FCRA) requires Consumer Reporting Agencies to let you dispute any information that’s inaccurate or incomplete and to delete anything they can’t prove after investigation.

If you have overdrawn your bank account, the bank will send you a notice in the mail or try calling you to get you to pay up so that you have a positive balance. If you choose to ignore the bank, well just like a creditor reports to a Credit Reporting Agency, the bank will report you to their own agency and that is Chexsystems. Once this is done, over the next five years, you will have a very difficult time opening up an account at any other financial institution partnered with ChexSystems. Since the vast majority of financial institutions deny such customers the possibility of opening bank accounts, being reported to ChexSystems is a very serious matter that complicates your financial life to no end.

How To Find Out If You’re On ChexSystems’ List

Most people find out that they’re on ChexSystems once they go to a bank to open a new account, only to have the branch manager or customer service representative come back to tell them that they are denied because they are in ChexSystems. Pretty embarrassing. A more dignified way to find out is by ordering your ChexSystems report, a copy of which you can order online or by calling and following the automated instructions. It will typically take a couple of days before you receive it.

Once you have your copy, go through it with a fine-toothed comb. It will include the following sections: your name and “consumer identifier”, one or more items of “Reported Information” (this is the bad stuff that is being reported about your banking history!), one or more “Inquiries Initiated by Consumer Action” (these are things you have allegedly done that caused someone to pull your Consumer Report), one or more “Inquiries Not Initiated By Consumer Action” (these are reports pulled by others about you without your direct permission), one or more “Retail Information” items (from other check-writing databases such as SCAN), one ore more “History of Checks Ordered”, and then personal information about you, including your Social Security Number, and Drivers License.

How To Be Removed From ChexSystem’s List

If there is any error or inaccuracy in your report, you have a right to dispute it and ask that it be corrected or removed. Each item that you can have removed from your report puts you one step closer to being taken off the ChexSystems bank list. After you have carefully reviewed your report, it’s time to get to serious things and write a dispute letter. Gather all the information that can prove that the items are wrong. You should especially focus on the items in the section called “Reported Information”. If there are reports of debts you owe to banks that you know you have paid, gather your proof (do you have a receipt for paying the debt?, etc.). Collect all this information for your letter.

In this letter, you will write to ChexSystems and point out all of the errors or mistakes in your report, and ask them to reinvestigate those items and correct your report. Remember, the FCRA requires that credit reporting agencies take action within 30 days to reinvestigate the items you point out to them, so make sure to be clear and detailed in your letter. But please do not do this if you know for a fact that your file is accurate. Your inquiry will be tossed as a frivolous one.

Alternatively, you could possibly call your bank and try to work something out. It really depends on the bank. You can ask your bank if they can have you deleted from Chexsytems in you pay off your overdraft and see if they agree. If they do, get the agreement in writing because there’s no way to prove a verbal agreement. Once again, if the bank agrees to ask to remove you from Chexsytems if you pay the debt, get that agreement in writing in case ChexSystems asks for it.

If you have been reported to ChexSystems but still have open checking accounts, make sure you do not close them.

Banks That Do Not Use ChexSystems

If all else fails, you’re going to have to find banks that do not use ChexSystems so you can still have a checking account: banks that supposedly will not run a Chexsytems check on you when you apply for a checking account. These institutions are prepared to take on prospects with less than stellar credit ratings. Some will approve the application without placing too much weight on the ChexSystems report. Some will require a 1 year waiting period while you pay off your outstanding debts before opening an account.

The Internet is chock-full of offers for “banks without Chex Systems”, so you need a few pointers to navigate the offers. Before you get involved with any company that claims to give you a fresh start checking account, run the following tests and make sure it passes them with flying colors:

1. Make sure it’s an FDIC-insured bank. If you decide to open a bank account with an institution that isn’t FDIC insured, you could basically lose all of your money if that institution goes out of business. So it’s extremely important to verify the banks status before you open an account. The insured limit was previously $100,000 per person per bank but it has recently been upped to $250,000.

2. If it’s a credit union, make sure it’s NCUSIF insured. The NCUSIF is the credit unions’ equivalent of the FDIC. You should check it for the same reasons stated above.

3. It helps if the institution has a brick-and-mortar branch. Such institutions are almost always more reliable than strictly online ones, although legislation has tightened to protect customers and make online banks more legitimate.

4. Do some background work on the bank. Perform a WHOIS on the bank’s domain name: if it’s registered to a person and not a corporation, you should be concerned. Look on the banks web site. There should be separate telephone and fax numbers, and a legitimate street address – not a PO box. You can always call 411 to confirm that the telephone number matches the address listed, while keeping in mind that some banks have a central location where they answer general calls.

5. Make sure the bank DOESN’T require you to use direct deposit in order to open the account: if you switch jobs, and no longer receive your checks through direct deposit, then you’re basically back at square one.

6. Make sure the institution doesn’t charge you for common items like monthly statements, telephone services, and withdrawals, options that are normally provided for free through regular banks and credit unions.

Banks that do not use ChexSystems are important because for many people who are unfortunate to be on ChexSystems, they’re the only chance to open a second chance checking account. Being without a checking account is financially crippling. Fortunately, most states have local banks that offer second chance bank accounts and you can get around the Chexsystems penalty.

Related resource: Banks That Do Not Use Telecheck

Second Chance Checking Accounts: Banks That Do Not Use ChexSystems

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• Got FDIC-Insured Money In the Bank? Take It To The Max!
• Fresh Start Checking Accounts | Second Chance Checking Accounts

I’ve previously covered the topic of how much of your money is insured in banks. In the meantime, though, amid the deepening of the financial crisis and the accelerated bank failures, the government has stepped up to ease customers’ fears by raising the coverage amount on bank deposits. On top of that, as we all know, wherever there’s risk, there’s also opportunity for profit. As a result, some services have popped up that allow worried customers to maximize the FDIC coverage of their deposits. So how does it work?

Deposit Insurance Explained

How it used to work

Basic Insurance Amount: $100,000 per depositor per insured bank.

Joint account holders got double the insurance and were covered for up to $200,000.

Individual retirement accounts (IRAs) are insured up to $250,000, in addition to the $100,000 of standard FDIC coverage.

Therefore a couple could get up to $700,000 of FDIC coverage by holding a joint account and 2 separate IRA accounts.

This is for a single bank. You can double that coverage by splitting your assets between two different banks (but not two branches of the same bank).

How it works now

Basic Insurance Amount: $250,000 per depositor per insured bank.

Joint account holders get double the insurance and are covered for up to $500,000.

IRAs insurance limits remain unchanged, and are still in addition to the $250,000 of standard FDIC coverage.

So that same couple from the previous example will now get up to $1,000,000 of FDIC coverage.

Of course they could still double the coverage by splitting their assets between 2 different banks.

Stretch Your FDIC-Insured Dollars To The Max!

Is $2,000,000 of FDIC coverage not enough for you? Well you’ll be glad to know that you have options.

Certificate of Deposit Account Registry Service

The Certificate of Deposit Account Registry Service, or CDARS, offers up to $50 million in deposit coverage through its network of roughly 2,500 banks. (Visit www.cdars.com to find a network member near you). You select what maturities (ranging from four weeks to five years) and terms best suit your investment needs. You work with one CDARS network member to secure your large deposits. That home bank takes care of splitting your deposit among as many partner banks as necessary, and you can specify any financial institution you don’t want to use (one you’re already using, for instance). You’ll earn one rate (set by the home bank, no need to negotiate multiple rates or manually tally disbursements for each CD), get one statement (no need to consolidate statements at the end of each month, quarter, or year), and one form at tax time (no need to manually consolidate statements or interest you’ve received).

FolioFn

This online securities firm offers a program that provides the highest coverage of FDIC backed insurance for cash available on the market — covering balances up to $6.25 million for individual accounts, and up to $12.5 million for joint accounts (held by two people). Your cash is automatically distributed (into money-market accounts) for you across many, many different banks — each one of which insures up to $250,000 of cash deposited. That means you can insure up to $12.5 million in cash held in various FolioFn accounts — trading, retirement, trust and so on. Funds are available on demand, so the money earns a relatively low rate — recently just 1.09% at the top end of FolioFn’s range of options. You must be a member — at a cost of $29 a month — to use its extended FDIC coverage. At the time of writing this article, their network was 26 bank strong; as they we add more banks to our program, the amount of FDIC insurance available to their clients is raised automatically.

Got FDIC-Insured Money In the Bank? Take It To The Max!

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