I normally relegate stories that focus on personal finance to Links, but this article by Naomi Wolf, “Banks Siding Against the Customer in Fraud Cases,” (hat tip reader Francois T) is such an appalling illustration of how predatory the banking industry has become that I felt it was worth highlighting to readers.
When a customer is a depositor, its bank is a fiduciary under the law. Per Wikipedia:
A fiduciary duty is the highest standard of care at either equity or law. A fiduciary (abbreviation fid) is expected to be extremely loyal to the person to whom he owes the duty (the “principal”): he must not put his personal interests before the duty, and must not profit from his position as a fiduciary, unless the principal consents. The word itself comes originally from the Latin fides, meaning faith, and fiducia, trust….
When a fiduciary duty is imposed, equity requires a stricter standard of behavior than the comparable tortious duty of care at common law. It is said the fiduciary has a duty not to be in a situation where personal interests and fiduciary duty conflict, a duty not to be in a situation where his fiduciary duty conflicts with another fiduciary duty, and a duty not to profit from his fiduciary position without express knowledge and consent. A fiduciary cannot have a conflict of interest. It has been said that fiduciaries must conduct themselves “at a level higher than that trodden by the crowd” and that “[t]he distinguishing or overriding duty of a fiduciary is the obligation of undivided loyalty.”
Yves here. Note the responsibility of the fiduciary. Crudely speaking, it is required to put the principal’s interests first. Yet the banks, when confronted with fraud against their customers, do the exact opposite. Not only are they concerned only with escaping liability, it appears their success in making the customer bear all costs (even in cases where the bank might have been clearly at fault) means they also lack incentives to take preventive measures.
In addition, it contains a very important lesson: if you think a bank account has been compromised, close it immediately, no matter how much your bank balks (and since banks resist this course of action, you may need to be ready to withdraw funds and open accounts at a new institution).
n 2005 I started to notice irregularities in a checking account I held with WaMu; but the irregularities were ambiguous. I sought at various times over the course of the next two years to go over all my statements — but had trouble getting all my records from both online banking and from my branch itself. A busy working parent, I was certainly not as proactive as I should have been — and, like many consumers of bank services, since we had family accounts and two mortgages at WaMu for many years, and had good relationships with our local branch, I also made the mistake of trusting the bank.
I noticed eventually that checkbooks were missing from my home, and finally my accountant got enough of the records to see an unmistakable pattern of fraud, and called my attention to it. I filed a police report and alerted WaMu to the fraud. For month….I complied with what the WaMu bank officials directed me to do — which was to leave the accounts open so they could investigate, they said, the fraud. If the fraud is reported within six months of confirmation of fraud, it is liable for the loss.
Then the same officials who had directed me to keep the accounts open, disappeared — systematically, for just over six months. When I sought to talk to the fraud department, I still could not get records — including my own missing bank statements — even to see the full extent of my losses. The bank officials who had directed me to keep my accounts open were unavailable at the branch — over the course of many attempts to speak with them. The police at the Sixth Precinct needed to see the missing documents, but even they could not force WaMu to hand over their — my — records. (WaMu’s own internal emails cite a $300,000 figure for my loss from fraud — I still did not have enough of my records to identify the loss. It is illegal, by the way, to withhold from an account holder his or her own records).
At eight months after the fraud discovery was confirmed — eight months of trying to communicate with officials and a fraud department who were oddly unavailable or unresponsive — I received a form letter from the WaMu Fraud Department advising me that according to the regulations, I had had a six month window for taking action; and (since WaMu had played out the clock for eight months) the letter asserted that I had waited ‘too long’ and my case was closed.
Inadvertently, subsequent to that, a WaMu bank official handed me the wrong file — wrong from his point of view; illuminating from mine, and from any consumer’s. It contained emails, some of which you can see at TheSmokingGun.com, from WaMu bank officials to one another — and including emails from and to their counsel, PR department and and the fraud department — that take as given that stonewalling a client with a fraud claim on the bank is standard practice; and yet one freaked-out bank official in the emails warns his colleagues that if their mechanisms in this regard became known, their practices would be all over the newspapers.
I was stunned by what seemed from the emails to be a systemic practice. Why would a bank want to perpetuate bank fraud rather than fight it?
As I researched the issue and spoke to other consumer bank account holders whose accounts had been corrupted by fraud, and to consumer advocates, I learned how systemic experiences such as mine — and worse experiences — are becoming. I heard from consumers across the country from all walks of life who had also been misdirected by their banks, or told that for various technical reasons their corrupted accounts could not be closed, and then faced difficulty reaching fraud departments or officials once the fraud was confirmed….
Customers assume that banking regulation and Congressional oversight means that if they find fraud on their checking accounts, there is accountability — which is not in fact the case; strong bank lobbyists translate into weak protections for consumers and, as you can see from the emails, the bank’s reasonable assumption that most customers in this situation will not be able to hold them accountable. And indeed, since legal action is time-consuming and expensive, most defrauded bank customers do eventually give up and go away…..a bank’s fraud investigation department is actually likely fraudulently representing itself as the customer’s, rather than solely the bank’s, advocate. Banks such as WaMu — and now Chase, which bought WaMu — expect such people to simply go away. They — and we — should, rather, reach out to our elected representatives for wholesale reform — and put each and every such case online, so consumers can see the worst offenders for themselves, and, with the power of the internet and their own consumer choices, protect themselves and demand accountability.