Credit Basics
Bounced checks can lead to banking ban
by
Eileen Alt Powell
Associated Press
March 27, 2004
NEW YORK
-- Lisa McKinley learned the hard way what can happen when you bounce checks.
McKinley, 36, a single mother with four children
in Milwaukee, got into trouble last year when everything went wrong all at once:
The company she worked for went out of business, the bills started piling up, the
washing machine broke.
As she juggled expenses, she wrote checks that overdrew
her account. She could not cover them, so her bank closed her account and no other
bank would let her open another.
"I had a tough time,' she said. "With no checking
account, no bank card, I had to use cash or pay with a money order.'
McKinley was one of the many consumers who find
themselves shut out of the banking system after mismanaging their checking accounts
and being blacklisted on a national registry.
Most consumers know that if they mess up with their
credit cards, their credit reports will suffer. But few are aware there's a separate
reporting agency, ChexSystems, that tracks those who bounce checks or overdraw their
accounts.
Banks, savings banks and credit unions submit the
names of problem customers to the registry, and the listing remains active for five
years. Those on the list who try to open new accounts during that time are likely
to be turned down.
The system, which dates to the early 1970s, is designed
to help financial institutions fight check fraud. It's a rising problem, with banks
and retailers getting stuck with upwards of $1.6 billion in bad checks a year.
Rahul Gupta, a senior vice president at eFunds Corp.
of Scottsdale, Ariz., which operates ChexSystems, says the registry helps prevent
up to $2 billion in additional fraud each year.
Still, he acknowledges some of the estimated 7 million
to 10 million people on the registry are not thieves but consumers who simply make mistakes in handling their money.
And sometimes those consumers do not even know they
have been blocked until they are turned down for a new account. That is what happened
to Shaun Dettloff, who owns a sunglass distribution business in Fountain Valley.
Dettloff, 30, closed a personal bank account and
then moved. He was not aware that a couple of checks came through later and did
not clear, or that bank letters seeking reimbursement went to his former address.
When he tried earlier this year to open a new business
account, he was turned down. The financial institution found his name and outstanding
debts on the ChexSystems registry.
"It was definitely my fault," Dettloff admits. "I
wasn't very good
about balancing my checking account, but it was an honest mistake."
Both Dettloff and McKinley have since gotten new
checking accounts,
due in part to a consumer education program underwritten by ChexSystems.
But thousands aren't so fortunate.
Jim Tisdale, a former banker who works with the
nonprofit Consolidated Credit Counseling Services Inc., a consumer
agency in Fort Lauderdale, Fla., said some people are victims of their own sloppy bookkeeping.
And, he argues, it isn't fair to blame the banks, which need tools to help them
evaluate would-be customers.
"They have to establish policies for their operations,
including reliance on programs
like ChexSystems,' he said.
