By Jay MacDonald • Bankrate.com

Irresponsibility breeds consequences.

The same is true of your checking account. Too many overdrafts and your bank may close your account with cause, meaning you just crossed over from valued customer to liability.

From there, it gets worse.

If your bank or credit union belongs to the ChexSystems network, as roughly 80 percent of the nation’s financial institutions do, a record of that account closure will be promptly entered into the ChexSystems database, where it will remain for five years, warning banks, lenders and even potential employers that you could be a credit risk.

Quietly tracking

You may never hear the name ChexSystems until you try to open a checking account elsewhere and are turned down. Again. And again. And again. At which point this altogether unassuming consumer-reporting company can seem like the Devil incarnate, out to ruin your credit rating, your reputation, even your life.

It can haunt you for years, says Steve Rhode, money coach and founder of Myvesta. On the one hand, it does serve a very good, legitimate service in that it’s supposed to be a record-keeping system of exactly how responsible you are with bank transactions. On the other hand, you can find yourself on the database and when you go to the grocery store they won’t honor your check.

How can you save yourself from five years in financial purgatory?

There’s now a way, even if you ended up in ChexSystems by your own hand.

But first, let’s meet ChexSystems. After all, better the Devil you know than the Devil you don’t.

An unlikely villain

The uproar over what is perceived as its autocratic, Draconian policies has inspired grass roots movements on the Web at sites such as PassChecking.com. whose goal is to help consumers work around the hold of ChexSystems.

Opponents to ChexSystems tend to fall into two camps: those who ended up on the database legitimately but feel their five-year sentence is too stiff, and those who erroneously found their way onto the ChexSystems list and had a whale of a time getting off of it.

Marty Romain, VP of Risk Products, Payment Account Solutions at Efunds. fields most of the media heat. In January 2001, Deluxe Corp.. a major check printer, spun off Efunds, its transaction-oriented business that includes ChexSystems, the SCAN check verification network and DebitBureau, which combines bank-fed and merchant-fed databases into an extensive risk-management system.

Romain explains that, as a consumer-reporting agency, ChexSystems compiles the facts on closed-for-cause accounts from some 80,000 bank and credit union locations nationwide and makes this data available to its members. ChexSystems is regulated by the Fair Credit Reporting Act in much the same manner as credit bureaus.

Controlling checking costs

Banks rely on ChexSystems primarily to help them screen applicants for new accounts, especially checking accounts. Checking accounts don’t generate much money for banks; many offer them free in hopes of enticing you to invest in more lucrative products.

But issued indiscriminately, checking accounts can expose the bank to considerable fraud and eat into profitability. According to a 2005 report by ChexSystems, financial institutions lost $30 billion to bad checks in 2004.

Since past account problems are considered a key predictor of potential risk, many (though not all) member banks will deny an account based on a ChexSystems report.

In these scenarios, the customer frequently considers ChexSystems the bad guy even though it has nothing to do with any decision a financial institution might make based on information in its database.

The data that is stored within ChexSystems is factual, accurate data; it’s what happened. Now, how the bank uses that information is completely at their discretion, says Romain. Just because there is an account closure on file in ChexSystems is not an automatic decline at every bank. Each financial institution sets its own parameters.

Sympathy for the Devil

So why is everybody yelling at ChexSystems?

Two reasons: it seems egregious that a few overdrafts theoretically could land you on a blacklist for five years, and once on that list, it can be nearly impossible to get off it.

Here again, both problems reside primarily with the banks, not ChexSystems. The bank decided to close your account based on its own policies and procedures, not ChexSystems’. It and other banks are perfectly free to give you a second chance. And although ChexSystems asks its members to remove inaccurate entries and note when an outstanding debt has been paid, banks are under no obligation to show you this small kindness.

Blaming ChexSystems for preventing you from obtaining a checking account is a bit like blaming the TV weatherman for the weather; they just report it, and are rightly focused on maintaining the integrity of the information.

If you happened upon its list by error, ChexSystems will help you square things with your bank and remove you from the database. Contact ChexSystems via the Web or call their toll-free number: 1-800-428-9623 to order your consumer report.

Early parole from purgatory

Those who wound up on ChexSystems’ database legitimately once had limited options. The company allows you to insert an explanatory note to explain extenuating circumstances, but it won’t delete or alter a factual listing unless instructed to do so by the closing bank. Otherwise, you could hunt for a non-ChexSystems bank at PassChecking.com. try your luck with an online bank or have friends or relatives cash your checks for you — meager options indeed.

But times have changed in the banking industry. Today, banks compete for your business. They don’t want to turn you down, but neither do they want to entrust a low-margin product to a high-risk consumer.

To help its member financial institutions resolve this dilemma, and to take a little heat off themselves, ChexSystems joined with consumer advocates, credit counselors, University of Wisconsin-Milwauke and University of Wisconsin Extension that developed a program called Get Checking. The goal: Give those on its blacklist an opportunity for early parole from purgatory by enabling them to earn back their checking account.

If a consumer is on our closure database, they can go to a class, and if they successfully complete that class and pay off all outstanding debts to the financial institution where the account was originally closed, then they are able, through the participating bank or credit union, to open up a new account and basically have a second chance, says Romain.

The national program has rolled out in 19 states so far. It will be some relief to ChexSystems when it can offer an alternative to its five-year mandatory sentence for folks who just plain made a mistake.

Jay MacDonald is a contributing editor based in Florida.