Hey there...

I'm still pretty new at my position so I'm asking for some advice. Actually, I know the answer, just want someone to back me up a bit!

I have a long time customer that appears to be kiting. It seems to be textbook even. Everyday, someone makes deposits checks drawn off of their account at another bank into their account with us. The checks that are debiting the account are made out to himself at the same local bank for nearly the same amount. Other checks that are clearing are for cash at a casino in the area.
I will be contacting the other bank to see what they know, if they know, anything. The good thing is, we haven't experienced any returned deposited items.
However, I don't want to wait that long. I'm going to file a SAR because of the activity and will also mail the customer a certified letter letting him know that I will be closing the account in 10 days.
Now, my understanding is that I can not mention "kiting" in any of my discussions with the customer. However, can I use inconsistent activity?

So, I'm doing the right thing, right?

I would think you could, and/or look at your deposit agreement for any key terms so that you will be consistent with it, and cite your desire to close under xyz.

You may consider fewer than 10 days if possible. When the wind stops blowing, the kite can fall quickly. It is like musical chairs. The one standing loses.

(PS ignore this if I am the other bank.)

Here's the essence of a letter I've seen used in suspected kiting circumstances. Obviously, you will want to review it with management and possibly bank counsel before you use it.

"We have noted unusual activity recently in your ____ Bank deposit account # _________. Specifically, we note frequent deposits and drawing of checks between accounts at two or more banks. This activity, if done for the purposes of benefiting from the float it creates, is a prohibited activity. Be forewarned that we may, at our option and without warning, close your account if we believe such continued activity creates a risk of loss to us.

Examples of this type of unusual activity, some or all of which may have been observed in your account, include the following:

- Deposits drawn on other institutions by the same maker or signer.
- Large debits and credits of even dollar amounts.
- Regular or excessive drawings against uncollected funds.
- Several accounts with similar names owned or controlled by the same individuals.

We will closely monitor your account's activity over the next few days and weeks. If you have any questions about this matter, please contact us.

Sincerely,"

You need to stop the kite before anyone gets burned. If you know about it and continue to allow it and then stop it with another bank taking a loss, you may find your bank liable to them because of your knowledge and inaction. I believe you said you have been discussing the activitiy with the other banks so that could reduce your risk but you never know when your customer may bring in another bank for an even bigger hit.

Start with putting some holds on the funds being deposited now. Your customer is probably depositing checks from a third institution at the other bank. A small delay in the float process could eaisly bring this to a halt and you don't want to be the last guy in line.

A hold on the next deposit is my favorite way to stop a kite. If the customer questions the hold, we say it is due to the number of personal checks deposited drawn on another bank and our losses are mostly in this area i.e. a risk issue. We avoid the word "kite".

Thanks for all of the help. I ended up writing the letter to close next week. Language was a little of this, that, and the disclosure. Those are handy little devils aren't they?

Thanks again!

I have used the word "check kiting" when discussing why we have closed someones account before . Is there some reason I shouldn't have, other than no customer I have ever said it to has known what it meant? Usually I say "check kiting", they say "what's that?" I explain it to them and they say "is that wrong? I was just playing the float"!

Good point! I think it's important to point out to customers that, not only do we prohibit that conduct with our accounts, but it's also a crime!

I have heard just about every explanation for check kiting that you can imagine and have heard it called "making transfers" to a "business arrangement" . It is funny how quickly someone stops trying to defend what they have done when you tell them it is a federal crime !

That is a bunch of Creatively Rigged Accounting Principles.

does kiting apply to credit cards and lines of credit?

Kiting can apply to any situation where you allow availability of funds prior to the collection of the funds, but it's most common with transaction accounts because the individual checks normally don't arouse suspicion unless you look at patterns over time. High activity credit lines are too visible and cumbersome for it to go undetected over time.

It's important to be the first one to identify the problem and return the checks drawn against uncollected funds. The second bank in the scheme will typically take the loss.