Telling a Would-be Customer to "Get Lost!"
by Mary Beth Guard, Esq.
Question: One of our legal people is telling me that if I turn down an account, I now have to give a specific reason and a disclosure. It was always my understanding that we had the privilege of choosing our customers, and if we decided not to service an individual, we should be careful NOT to give a reason, in order not to be discriminatory. Can you shed some light on this?
Answer: Unless your state has a peculiar law to the contrary, your institution can refuse to open an account for anyone, for any reason, so long as the reason is not illegally discriminatory. I can hear some of you now. "Illegally discriminatory? Sounds like legal double-talk to me." What I'm saying is simply that you cannot discriminate on a prohibited basis.For example, under the Americans With Disabilities Act, you cannot discriminate against an individual in providing your products and services on the basis that they have a disability as defined by that Act. While the federal Equal Credit Opportunity Act would not be applicable in the deposit account context (unless the deposit account entailed a credit feature, such as an overdraft line of credit), the bases upon which you are prohibited from discriminating under ECOA are often also found in state anti-discrimination laws and those laws may extend to all facets of your business, rather than just to credit.
If you decide not to open accounts for individuals of a specific gender, color, marital status, race or religion, you might as well sit tight and wait for the complaint or petition to be filed, because I can assure you there will be a lawsuit. Someone will find a basis upon which to attempt to nail you for discrimination. Steer clear of those obviously objectionable modes of discrimination.Most forms of picking and choosing your customers are not illegal. Take Johnny Obnoxious, for example. Every time he comes into your institution he's loud and abusive. No one can please him. He yells. He criticizes. He leaves your employees in tears. He moved away for a while. Now he's back in town and wants to open an account. You can smile oh so sweetly and tell him clearly and completely that his is the kind of business you don't want. No problem.
If Charles Manson gets paroled tomorrow and wants a checking account at your institution, how comfortable would your tellers be waiting on him? ("You tell him he doesn't have enough funds to cover this withdrawal request." "No way! YOU tell him.") You can decline his account as well.
The squad of hookers. The sexual harasser. The toad with an abysmal credit history. The smelly fool. The shifty-eyed crook. The guy that makes your hair stand up on the back of your neck. Don't want 'em as customers? Fine. You don't have to accept them.So, as a practical matter, how do you decline their business? Carefully!
There are two important considerations: the need to comply with the Fair Credit Reporting Act, where applicable, and the need to avoid uttering something defamatory about the deposit account applicant.
Don't let the name fool you. The Fair Credit Reporting Act does not come into play only in connection with an application for credit. It is applicable any time a consumer report is being obtained or utilized. In connection with an application for a deposit account, a financial institution may legally obtain a credit report because it is for use in connection with a transaction initiated by the consumer. If the institution makes a decision to decline to open the deposit account based in whole or in part upon information contained in a consumer report from a consumer reporting agency, it must furnish an adverse action notice to the consumer, pursuant to 15 U.S.C. 1681(m). The notice can be given orally, in writing, or electronically. It needs to set forth three things: 1) information about the consumer reporting agency that furnished the report, 2) a statement that the agency did not make the decision to take adverse action and therefore cannot provide the consumer the specific reasons why the adverse action was taken, and 3) information about the consumer's rights under the FCRA.
If your decision to decline to open the account was based upon something other than information contained in a consumer report, such as your personal familiarity with the applicant's offensive conduct or past bad dealings with him, the adverse action notice requirement will not be applicable, and your institution can make a business decision about whether its policy will favor giving any oral or written notification of reasons for account denial to the applicant. Unless a state statute requires it (or the FCRA provision described above is applicable), you are under no obligation to furnish a statement of reasons for your action, and it may be wise to simply say "We choose not to open an account for you at this time."
If you do decide to provide an oral or written statement of reasons, keep it general and as non-offensive as possible. Avoid making any statement that would put the individual in a false light or accuse him of a crime. You may wish to come up with a list of possible reasons to provide so they're handy to choose from when the need arises. I invite those of you who have thought through these issues and developed some good statements of reasons to share them with us!
A bank account is a virtual necessity in today's society. Your power to deny an account application should never be abused. Consider the facts and circumstances carefully, avoid illegal discrimination, but exercise your right to protect your employees and your institution from individuals who could pose a risk of loss to you or who would create an unpleasant atmosphere in the workplace. Faithfully discharge your disclosure obligation under FCRA if a consumer report comes into play. If you abide by these simple principles, you can safely tell Attila the Hun to go take a hike!
Banks Regretted Opening New Accounts
Recently, in Boston, a businessman and his accountant friend were sent to jail after getting a $400,000 line of credit from a bank. The businessman created a corporation out of thin air, and the accountant created a fictitious corporate income tax return and financial statement. The bankers were believers.
In California nine people opened bank accounts, stole checks from the mail, deposited them into the new accounts, and over four years of activity, took nearly $40 million from the banks. All of the information on the new account applications, says the FBI, was fraudulent.
Copyright © 2001 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 11, No. 12, 12/01
First published on 12/01/2001