The trend: A recent New York Times article sheds light on a rising trend of unexpected bank account closures, emphasizing the challenges customers face in navigating their necessary day-to-day financial activities.
The legal requirement: FIs must report suspected illegal activity by submitting “suspicious activity reports” (SARs) to the US Department of the Treasury’s Financial Crimes Enforcement Network.
What type of activity raises a red flag? The New York Times highlighted a handful of the 500 complaints it has received from consumers—painting a picture of ordinary, lawful circumstances that allegedly led to the account closures, such as:
Aaron Ansari, who used to program the algorithms that help FIs identify suspicious activity, told the New York Times: “There is no humanization to any of this, and it’s all just numbers on a screen. It’s not, ‘No, that is a single mom running a babysitting business.’ It’s ‘Hey, you’ve checked these boxes for a red flag—you’re out.’”
How’d we get here? Banking expert J.D. Koontz says FIs act out of an abundance of caution—erring on the side of compliance rather than facing hefty penalties for letting suspicious activity slide.
The bigger picture: The trend of sudden unexplained account closures isn’t limited to the US, and has prompted UK lawmakers to propose rules that would require banks to clearly explain any closure—and give customers 90 days to challenge a decision through the Financial Ombudsman Service or find a replacement bank.
Key Takeaways: While algorithms can raise valid red flags and highlight abnormalities in banking activity, the customer testimonials in the New York Times revealed a breakdown in the process. Namely, it needs to incorporate relevant facts customers provide about their banking activities.
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