Restricting account activity awaiting verification
Answer by Ken Golliher, BOL Guru BIO AND CONTACT INFO
Question: When an account is opened for a new customer and additional information is required to verify their identity, is the financial institution allowed to restrict the account to deposits only until the necessary information is received from the customer? I know the bank can place limits/restrictiions, but I am unclear of the scope of the limits.
Answer: You are not alone in finding the CIP provision which tells you to describe The terms under which a customer may use an account while the bank attempts to verify the customer’s identityas difficult to implement. I am happy to help you try, but would suggest to you that this is a trap for the unwary. Providing for this eventuality is something you are allowed, not required, to do. If you draft your CIP to require that identity be verified prior to opening the account there is no need to address this situation.
First, please note that the information CIP requires you to get must be obtained prior to opening the account.. You cannot open the account until you get the information. It is the verification procedures you are allowed to conduct within a reasonable time after the account is opened.
Second, there are no legal limits on the restrictions you could impose on account use while you are attempting to verify identity. You are bounded only by practicality and your ability to effectively explain the restrictions to the customer.
As you suggest, you could allow deposits to the account, but not withdrawals. This would be difficult to explain to the customer. It would be even more difficult to implement. For example, in the case of an individual, you could have personalized checks mailed to the bank instead of delivered to the customer and refuse to issue an ATM card altogether until the verification process is completed. However, the individual can obtain personalized checks from another source or readily initiate an ACH debit once he has the account information. If you refuse to honor a check or ACH debit presented in the time frame in which considered the account as restricted, you trigger other legal concerns.
Do you really want to make a loan or accept a deposit from someone before verifying their identity?
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