Prudent Precautions

by Mary Beth Guard, Esq.

Imagine my surprise when I opened the mail today and found a "Confirmation of Change of Address" from my mortgage company. I didn't know I had moved!

In fact, I hadn't. And I certainly had not requested a change of address on my account. My mind started racing, thinking of horrid possibilities. Was someone trying to steal my identity? Was someone trying to hijack my credit? Cause me inconvenience or harm?

I immediately called the bank and alerted them to the problem. They quickly determined that a typo had resulted in the erroneous address change. A transposition of account numbers placed another customer's new address on my loan account. It was a relief to know this all was because of simple human mistake, rather than a deliberately fraudulent act.

But what if my bank had not sent the written confirmation of change of address? When - or how - would the problem have been caught and corrected? What if this had been a deposit account, rather than a loan account? What if this had been a true case of identity theft or other fraud? A first >
You can't totally prevent fraud. But taking prudent precautions to try to guard against fraud may help your bank minimize its loss. As a lawyer, I urge you to think in terms of "How would this situation look or sound to a jury in the event the customer suffers harm and sues the bank? Will they believe we acted appropriately?" By taking a few easy - and inexpensive - precautions, you could avoid litigation or at least significantly improve your position at trial.

Let's say the bank receives a letter that simply says, "Please change the address on my checking account, #2468 to 45 Cherry St., Anytown, NY 12429." You process the address change. Later you learn that the account holder never authorized the change. Instead, it was sent by the customer's creepy ex-boyfriend who wanted to see who she was writing checks to. The customer sues the bank, alleging negligence and breach of contract. You are chosen to testify on the bank's behalf to defend the bank's actions.

"We received the request and we promptly acted upon it," you say. "Did you attempt to verify with the customer that it was a valid, legitimate request?" asks the plaintiff's counsel. At that point, which of the following answers would you prefer to give?

"Well, no. We didn't. I guess we just assumed that if someone was requesting a change of address on an account, it would be the customer."
Or
"Of course we took steps to verify the request was legitimate. We have very strict procedures that govern customer address changes. First, we compared the name of the person requesting the change with the name of the owner on the account. Second, we compared the signature on the letter with the customer's signature on the signature card. Third, we sent a letter out to the customer's old address, as well as the purported new one, confirming the address change."

See the difference?

Here are some additional prudent precautions:

• When you open an account for a corporation, send a letter to the registered service agent listed on the corporate documents, noting that an account has been opened in the name of the corporation, by whom, and the date. Thank them for their business and note who to call if they have questions. If the account was opened fraudulently, you have effectively, but subtly, alerted the proper party in time to prevent damage. If the account is legitimate, the letter will appear as a nice marketing gesture. Welcoming letters are a good tool to use with new customers of all types.
  
  
• Any time an individual is added to an account under a Power of Attorney or court order, a letter should be sent to the account address confirming the addition. Signatures on POAs should be checked against the signature card.
  
  
• Use caution with emailed requests. You may know John Doe's email address is johndoecustomer@aol.com, but if you receive an email request from that address you can't be sure John sent it. Let's say John and Mary Doe have a joint account. You get an email from him saying "Please remove me as a joint owner from the above-referenced account. John Doe." You assume the email was from him. Oops! Turns out John left his computer behind when he and Mary separated, and Mary used it to impersonate him. Always resort to real-world confirmation of cyber-requests.
  
  
• If an owner of an account orders you to remove an authorized signer, consider notifying the authorized signer with a courtesy call or letter. If the owner and the signer have gotten into some sort of nasty dispute and the owner has not notified the signer that he is being removed, the signer may unwittingly keep writing checks. If you pay those checks, you may incur some losses. Ask the owner at the time of the removal if the signer still has any blank check stock and if the signer is aware of the change. If the signer still has checks, you may want to require the account to be closed and open a new one to avoid unauthorized signature problems.

Simple steps like those outlined above can go a long way toward protecting your customers - and protecting your bank.

Copyright © 2000 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 10, No. 7, 7/00