Report: Banks Shutting Customer Accounts Over Fraud

In the banking world, it’s a practice known as “exiting” or “de-risking.”

It’s what happens when a bank closes a customer account after flagging suspicious activity to crack down on fraud and other crimes. And according to a Sunday (Nov. 5) New York Times (NYT) report, it’s led to an increasing number of consumers and small businesses losing their bank accounts without warning.

Per the report, banks are required to submit a “suspicious activity report” (SAR) when they spot transactions or behavior that could violate the law, like unusually large cash transactions or wire transfers with banks in high-risk countries. 

The NYT report, citing data from Thomson Reuters, said banks filed more 1.8 million SARs last year, an increase of 50% in two years. The figure is on track to reach nearly two million this year.

The report profiles a number of consumers who found themselves cut off from their bank accounts for a variety of reasons.

One man had accounts closed by three separate banks due a 12-year-old criminal conviction. Another woman said she had hers shuttered due to payments from a cannabis company. A man from Nigeria had his account closed because of a third-party connection to a fraudster.

The NYT quotes Jerry Dubrowski, a spokesman for JPMorgan Chase, who said accounts are only closed after an appropriate review and weighing of the facts. 

The bank, the country’s largest, has 80 million retail and 6 million small-business clients, the report said, noting that former customers sent almost 200 complaints to the newspaper.

“We act in accordance with our compliance program, consistent with our regulatory obligations,” Dubrowski told the NYT. “We know that can be frustrating to clients, but we must follow those obligations.”

The news comes at a time when a majority of consumers say they value trust over other factors when choosing a financial institution (FI), according to “Credit Union Membership and Credit Profiles,” a joint PYMNTS Intelligence/PSCU study.

That report found that — for super-prime customers especially — trust is a critical factor when deciding where to keep their accounts, with 67% of these consumers citing the trustworthiness of an FI as a crucial consideration in their banking decisions, coming in ahead of factors like ease and convenience, ability to innovate and access to lines of credit. 

“Overall, trust emerges as a vital component in the banking industry, significantly impacting both customer satisfaction and the acquisition of new customers,” PYMNTS wrote. “And with nearly 70% of CU [credit union] members citing trust as a decisive factor in their banking decisions, FIs need to prioritize building and maintaining trust with their customers to ensure long-term success.”