Regulation J - Security Procedures

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Question:

Is the Bank required to have a special procedure section on the DATA form? Should we give the client the option to decline the use of the security procedures that are offered by the bank?

Answer:

I can't speak to the contents of the DATA form, but can offer a suggestion on security procedures. With the huge numbers of bank accounts that have been compromised in the past year or so due to various viruses and other tools used successfully by criminals to steal logon credentials and other authentication routines designed to protect bank customers from fraudulent transfers from their accounts, any attempt by a customer to decline the use of security procedures should be considered a danger signal for the bank. To the extent possible, banks should not allow their customers to avoid security steps viewed as inconvenient or time-consuming. They are there for the customer's protection and the bank's.

Before accepting a customer's request to decline security protection, consult with the bank's legal counsel to determine whether an appropriately-crafted waiver or disclaimer document can afford the bank some forward-looking protection against liability should the customer's refusal of security procedures result in losses.

First published on BankersOnline.com 5/30/11