The reasons vary, but the scene that plays out is almost always the same.
Bank customers get a letter in the mail saying their institution is closing all of their checking and savings accounts. Their debit and credit cards are shuttered, too. The explanation, if there is one, usually lacks any useful detail.Or maybe the customers don’t see the letter, or never get one at all. Instead, they discover that their accounts no longer work while they’re at the grocery store, rental car counter or A.T.M. When they call their bank, frantic, representatives show concern at first. “Oh, no, so sorry,” they say. “We’ll do whatever we can to fix this.”
But then comes the telltale pause and shift in tone. “Per your account agreement, we can close your account for any reason at any time,” the script often goes.These situations are what banks refer to as “exiting” or “de-risking.” This isn’t your standard boot for people who have bounced too many checks. Instead, a vast security apparatus has kicked into gear, starting with regulators in Washington and trickling down to bank security managers and branch staff eyeballing customers. The goal is to crack down on fraud, terrorism, money laundering, human trafficking and other crimes.
In the process, banks are evicting what appear to be an increasing number of individuals, families and small-business owners. Often, they don’t have the faintest idea why their banks turned against them.But there are almost always red flags — transactions that appear out of character, for example — that lead to the eviction. The algorithmically generated alerts are reviewed every day by human employees.
Banks generally won’t say how often they are closing accounts this way, and they’re not tracking how often they get it wrong. But federal data offer clues.
By law, banks must file a “suspicious activity report” when they see transactions or behavior that might violate the law, like unexpectedly large cash transactions or wire transfers with banks in high-risk countries. According to Thomson Reuters, banks filed over 1.8 million SARs in 2022, a 50 percent increase in just two years. This year, the figure is on track to hit nearly two million.
Multiple SARs often — though not always — lead to a customer’s eviction. Federal laws have little to say about the trigger for account cancellations.But a New York Times examination of over 500 cases of this dropping of customers by their banks — and interviews with more than a dozen current and former bank industry insiders — illustrates the chaos and confusion that ensue when banks decide on their own to cut people off.
Individuals can’t pay their bills on time. Banks often take weeks to send them their balances. When the institutions close their credit cards, their credit scores can suffer.
Upon cancellation, small businesses often struggle to make payroll — and must explain to vendors and partners that they don’t have a bank account for the time being.As if the lack of explanation and recourse were not enough, once customers have moved on, they don’t know whether there is a black mark somewhere on their permanent records that will cause a repeat episode at another bank. If the bank has filed a SAR, it isn’t legally allowed to tell you, and the federal government prosecutes only a small fraction of the people whom the banks document in their SARs.
As a result, you don’t know what you’re under suspicion for. “You feel like you’re walking around wearing this scarlet letter,” said Caroline Potter, whose Citibank accounts were shut down abruptly last year.
The banks, facing ever more aggressive regulators and examiners, offer a modicum of sympathy.“We want to build long-term relationships with our clients, which is why accounts are closed only after appropriate review and consideration of the facts,” said Jerry Dubrowski, a spokesman for JPMorgan Chase, the nation’s largest bank with 80 million retail customers and six million small-business ones, whose former account holders sent nearly 200 complaints to The Times.“We act in accordance with our compliance program, consistent with our regulatory obligations,” Mr. Dubrowski continued. “We know that can be frustrating to clients, but we must follow those obligations.”He added that “the vast majority of closures are correct, consistent with the regulatory obligations we are required to follow,” and that the number of closed accounts was a fraction of the bank’s overall business.