Is anyone aware of any state law that would prevent a bank from asking on a loan application form (mortgages, or other loans as well) if the applicant was ever convicted of a felony (if yes, an explanation is required from the applicant). I have done some research and can't find any law preventing this. I am in a Private Banking area and we of course have strict KYC rules and investigate everyone prior to accepting them as a client. We have declined applicants who had convictions for financial crimes or drug related offenses (due to ties to money-laundering). The basis for the decline is for credit reasons (character) and also for BSA, anti-money laundering. Private Banking is listed as a high-risk banking area due to clientele and product set, which can be used to launder money.

We would like to ask right on the mortgage application - sometimes clients enter the private banking division through that product - but want to make sure there is no state law that would prevent the question.

I am asking as many people as I can in an effort to cover all bases, as well as doing research!

------------------
K. Blanchard
NY, NY
1-212-559-1429

I honestly do not know of any law that prohibits you asking that question; however, I do not know every law. Here is an email address to a person who is well versed in lending regulations....try emailing her.
pcashman@tibsite.com

good luck.

K. Blanchard:

Most institutions still don't run background checks on applicants for employment -- let alone applicants for an account relationship! There's no law or regulation that I know of that would prevent your question.

Please work with your institution's legal counsel and draft a written notice of your intent to deny an account relationship to anyone with a financial crime conviction history (not only an arrest and not only felonies) that may include, but is not limited to: any theft crime, fraud, forgery, embezzlement, and money laundering, etc. Then expand this list to meet your specific goals and other needs.

Then add your statement of intent to all account applications and your in-lobby marketing brochures. Add a press release and a media interview and perhaps prevent some criminal activity while impressing your potential client base.

Dana Turner

------------------
Dana Turner
Security Education Systems
danaturner@bankersonline.com
210-310-0212

Felony convictions are public record so you should be able to ask whether the customer has been convicted. However, arrests are a very different matter. You could not ask about arrests because those may not be public record. And, we are innocent until proven guilty...

Reminds me of a call I received several years ago . . . A bank had approved a home mortgage loan for a married couple with three small children. The couple was buying a significantly more expensive house than they previously owned. Prior to the date of closing, the wife discovered the husband had been sleeping with their 15 year old babysitter. The wife experienced a nervous breakdown and ended up in the hospital. The father of the wife took off after the husband, threatening to kill him. The babysitter's dad went straight to the police, seeking to prosecute the guy. The bank then called me and asked if they could rescind their approval of the loan, based upon the new circumstances. I asked if they had been informed of these developments by either applicant or how they became aware of the intimate details of their customers' lives. They said, "This is a VERY small town." Having grown up in one, I knew exactly what they meant!

We will only ask about convictions, not arrests. And in my bank's Private Banking area, which is at the high end of private banking, clients are "investigated" prior to being accepted. At a minimum, this is an indepth interview discussing source of wealth and any skeletons in the closet, and internet news searches. It can go on to include more indepth searches such as lexis/nexis or dow jones, or even an investigative report. No money is accepted for deposit or investment until the client is "accepted". We are not unusual in our market. Some clients start out with a mortgage application, which is why we want to add the question re convictions on the application. We have found news articles about convictions for tax fraud, drug convictions, securities license revocations, other fraud, etc. and have declined the applicant after confirming the information. We cannot accept these individuals into private banking.

Thanks for your assistance!