Disasters and Customer ID Programs

John S. Burnett, BOL Guru

In the days immediately following the Hurricane Katrina disaster, there began a mass migration of survivors from the Gulf Coast region, especially New Orleans. As these victims of Katrina's fury arrive in new cities and towns all over the country, many understandably need to establish new banking relationships. Some of these individuals have left behind all of their identification, and many can not provide a permanent residence street address. Meeting the needs of the displaced people from the Gulf Coast may be a challenge for bankers, in light of Customer Identification Programs (CIPs).

Our friend Ken Golliher reports a conversation with a bank in Florida that opened an account for a relative of one of their current customers. Their new depositor had just arrived from flood-ravaged New Orleans, with barely enough cash to meet the bank's minimum opening deposit of $50. According to Ken's source, the bank added another $50 to the deposit. When the bank learned that the new arrival had construction experience, a call to a customer in that business yielded a job for the grateful depositor.

There is no template for banks for their responses to this huge human tragedy. Bankers across the country will be challenged to balance compassion with caution, conscience with care. It is certain that the "front line" personnel in these banks will be looking toward management for leadership -- leadership that has addressed the hard questions and can guide front line employees as they confront the stark realities presented by the new guests in their communities.

In its analysis of what can be done, management will have to confront two significant stumbling blocks in their CIP policies -- ID verification and residence address requirements. Depending on how tightly a financial institution's CIP policies were drawn, management may see a need to adjust their institution's requirements to accommodate the very real financial services needs of potential new customers.

Many institutions have strict documentary ID verification requirements for individuals opening accounts in person. They amount to "no picture ID means no new account," with limited exceptions, perhaps, for identified groups -- perhaps youths and the elderly -- who may not have traditional documentary identification. How can these policies be adapted to accommodate refugees from disaster? Changes can be made to allow for non-documentary verification -- using credit bureau reports, for example.

There are also many institutions that require customers to provide actual residential street addresses when opening accounts. Yet as we know, many of the individuals hoping to open new banking relationships are in temporary housing, perhaps for weeks or months. Bankers have the option under the CIP regulations to accept the address of a relative or other contact person when the account-applicant cannot supply a residence address.

Adjustments to a bank's CIP policies are, of course, ultimately up to the institution's board of directors. If management makes "interim" changes to respond quickly to the challenge, those changes should be brought to directors for ratification.

In their September 1 joint press release, the federal financial regulators stated --

The agencies, in consultation with FinCEN, also encourage depository institutions to be reasonable in their approach to verifying the identity of individuals temporarily displaced by Hurricane Katrina. Under the Customer Identification Program requirement of the Bank Secrecy Act, depository institutions must obtain, at a minimum, an individual's name, address, date of birth and taxpayer identification number or other acceptable identification number before opening an account. The Customer Identification Program requirement provides depository institutions with flexibility to design a program that uses documents, non-documentary methods, or a combination to verify a customer's identity. Moreover, the regulation provides that verification of identity may be completed within a reasonable time after the account is opened. Recognizing the urgency of this situation, the agencies encourage depository institutions to use non-documentary verification methods for affected customers that may not be able to provide standard identification documents, as permitted under the regulation. A depository institution in the affected area, or dealing with new customers from the affected area, may amend its Customer Identification Program immediately and obtain required board approval for program changes as soon as practicable.

To quote Ken Golliher, bankers facing the unique challenges presented by the aftermath of this disaster will decide "whether dealing with Katrina's evacuees is a problem or just an opportunity wearing its work clothes."