Friday, September 4, 2015

Opening Accounts Banks and Other Financial Institutions; Making Changes to Accounts: The Know Your Customer Rules and How One Bank is (Mis)Interpreting Them

Recently, one of the co-authors, Kathleen (Kathy) Bay encountered the following at J.P. Morgan Chase Bank (“Chase”) where Bay has a safe deposit box to hold original documents of clients and also other old accounts (including ones for children) (dating from 1987).  All Bay wanted to do was add another attorney at the firm as a signatory on the safe deposit box.  After a hearing at probate court one day, Bay and another firm attorney went to Chase.  The customer service gentleman refused to add a new signature unless Bay revealed to him all investment assets she has that were not at Chase.  The reason?  The customer service gentleman said, basically, that “I have to get this information as part of Chase’s Know Your Customer rules.  This is not Chase; the Federal Government requires it.

Bay refused to provide this information, pointing out that she had been a customer for 25 years and if Chase did not know her yet to its satisfaction, it never would.  Bay also offered to sign a statement that she had no off shore assets as she thought perhaps that was one of the concerns Chase might have.

Bay has spoken to an attorney in Chase’s general counsel’s office who stated that Federal law does not specifically require that the question about a customer’s finances needs to be asked.  However, committee members at Chase developed the list of questions so Chase can better serve all its customers by “knowing” them.  Bay noted that she had called a different bank to ask if it was asking this question; the answer was, “no”.  The counsel’s response:  Chase is the first bank to do this.  In 5 years, other banks will be following Chase’s lead.

One can only wonder, why is Chase doing this?  As a result of Chase’s involvement in the Bernie Maddoff fiasco, including consent decrees and agreements with the Feds, Chase may, as of August 1, 2014, have adopted Know Your Customer Rules that are, in Bay’s opinion, truly overreaching.  Is this a case of Chase making lemonade out of the lemons of being under great scrutiny from the Feds?  That is, if you let Chase know what else you own, will this information be used to try to get you to transfer your other assets to Chase and to sell you other products?

Be prepared, though, that if other banks do follow Chase’s lead, you may either be coerced into revealing private information that you consider to be “none of the bank’s business” or being in a position where you are unable to open a bank account or make changes to one you already have.  The silver lining?  You should be able to close an account (or safe deposit box) without revealing private information because you will no longer be a customer if you do so.

Right now, what Chase asks of a corporation is much less than what it asks of an individual.  You can create a corporation and bypass the overreaching Know Your Customer rules that way.  Being forced to create a corporation just to avoid such rules is, in the opinion of this author, yet another act of overreaching.

– Kathleen Ford Bay