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Verification of Business Accounts
Answer by John Burnett and Ken Golliher, BOL Gurus
Question: In opening corp, LLC, and partnership accounts, we do Telecheck and CheqSystems on the principals. We have them sign an authorization. We are now considering not doing that process. We would still require the appropriate documentation and could verify with the Secretary of State. I would like to know what your opinion is regarding verifying through CheqSystems and Telecheck or similar systems of the principals for these business accounts.
Answer by John Burnett:
BIO AND CONTACT INFO
Verifying the individual signers' identities, etc., on LLPs, corporations, and other entities will not satisfy CIP regulation requirements, since it is the entity in these cases that is your "customer" for the purposes of the regulation. So you need to do something about verifying that the entity exists.
Many banks will continue to verify the signers on these accounts, and that is appropriate, if that's what they want to do. After all, for many entities, it's really the stability and creditworthiness of the signers that determines the future of the account relationship. I would not want someone as the principal signer on a small LLC's account if that individual had been booted out of 5 banks for mishandling accounts.
But be certain to continue to get the individuals' OK to do these checks as part of your account application process.
Answer by Ken Golliher:
BIO AND CONTACT INFO
Only reinforcing the last sentence of John's response, please note Footnote 15 to the CIP regulations:
(Under the Fair Credit Reporting Act (FCRA), a consumer reporting agency generally may furnish a consumer report in connection with transactions involving the consumer and no other. See 15 U.S.C. 1681b. Thus, for example, a bank would be prohibited from obtaining a credit report to verify the identity of an authorized user of a customer’s credit card.)
The same prohibition applies when you want to pull a consumer report on the signatories to an entity's account. As John notes, you need their written permission. Far too many bankers are surprised when they hear this.
First published on BankersOnline.com 9/2/03
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