Banks are a place for us to handle our checking, savings, and possibly a loan. Beyond that, for many of us banking is a black hole. Why banks do what they do and how they do it is little understood outside of the banking community.

The more information you have, the better consumer you can be.

Being a Smart Banking Consumer

(Part 2): Bank Rights & Responsibilities

In this post, we’ll deal with the bank’s rights and responsibilities to you as the account holder.  These are set out in the agreements you sign and/or agree to when you open an account. The most significant agreement is called the Deposit Agreement. This document can be up to 40 or 50 pages of what the bank must do, by law, when certain situations occur relating to your account.

Here are some of the most important responsibilities a bank has to you, the customer:

Ordinary Care

A bank is required to exercise “ordinary care” when it takes a deposit or cashes a check in any form. Ordinary care means that the bank must follow standards that do not vary unreasonably from other banks handling a similar item. The one exception is if it’s an automated item; in this case, the bank is not required to examine these.

If the bank follows ordinary care in the handling of any item, you release the bank from any claims or losses you incur.  However, if you can show that the bank did not exercise ordinary care and you suffered a loss as a result, the bank may reverse a decision it made against your account. You may also be able to claim monetary damages in a court.

An example of this could be that you asked the bank to pay your rent payment at a certain date each month out of your account. The bank is responsible to make that payment. If the bank does not pay that rent payment and you get an additional charge, or possibly even an eviction notice at the extreme, the bank did not exercise ordinary care. In this scenario, you may have a case for monetary damages against the bank.

Adverse Claims

An adverse claim is defined as any of the following:

• Any person or company makes a claim against your account. For example, you are sued, and the judgement allows the person or entity to access the funds in your account;

• A conflict exists between or among your account holders. For example, a joint account with two partners who have a disagreement about the funds in the account;

• A dispute exists as to who is the owner of the funds in the account.

There are several possible actions that the bank can take when there is an adverse claim against your account.

For example, say you indicated verbally to the bank that you did not authorize a check, but your signature is on the check. This dispute has to do with whether a check has been authorized by someone who is on the signature card. In this case, the bank can rely on the signatures on the signature card of the account.

Let’s say you have a lengthy dispute with a utility, like the gas and electric company, and the utility company claims that you do owe a certain amount of payment. The bank can honor these claims, if you agree. Of course, sometimes you won’t always agree.

In a case where such a dispute is unresolved, the bank can freeze the funds until they feel the dispute is resolved. This can be a benefit to you as the customer, as a government or person who made a claim on the account must resolve the dispute with you. For example, a state indicates you owe certain taxes. The state cannot take your funds until the two of you agree to the exact amount that you owe. In some cases, these disputes may need to be resolved in court. In other instances, a bank can close an account and send the funds to you and anyone who claimed the funds.

Legal Process

Legal process is any valid tax, garnishment, or withholding order, such as a warrant or subpoena against your account.  An example occurs when you have not paid your state or federal income tax. The taxing authorities can then garnish your account. That is, they can ask the bank to remit to the authority the amount of the tax. The bank is required to honor all valid legal processes and will withdraw funds or freeze the funds in the account.

Suspicious or Unusual Activity

The bank may restrict access to your account if it suspects any suspicious, unauthorized, or unlawful activity. Money laundering, or using an account to deposit funds from illegal internet gambling or sales of drugs are examples of suspicious activity. Banks are required, by law, to monitor for money laundering. All banks have extensive software that monitors every account at the bank daily for out-of-pattern activity.

For example, let’s say you rarely deposit cash into your account. Then, one day, your account receives a deposit of $20,000 in cash. The bank would see this as out-of-pattern “unusual activity” and investigate for the possibility of you obtaining the money illegally. On the positive side, if someone has hacked into your account and is making withdrawals which you did not approve or have knowledge of, the bank may see this as suspicious activity, notify you, and freeze your account until they can confirm whether you are the one who made the withdrawals or payments.

Stay tuned for part 3, where we will go into more detail on your rights and responsibilities as a customer.

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