What Would the Jury Think?

by Mary Beth Guard, BOL Guru

About ten years ago I spoke to a loan officer who had been involved in a lender liability suit filed against his bank. The borrowers alleged the usual laundry list of claims -- breach of contract, breach of the duty of good faith, negligence, and all the rest. The underlying facts, however, made it seem more like a wrongful death suit. The subtle message being sent to the jury was that the bank had killed Joe's dream, and that killed Joe.

The jury verdict against the bank came in at $1.3 million. Years later, I asked the loan officer how it felt to be sitting in the courtroom when the jury came back and announced their verdict. He said he doesn't remember much about that day or a few days afterward. It easily ranked as the worst time of his life.

I often wish I had a video that captured the pain in his voice and the agonized expression on his face. Not because I enjoy being a witness to misery, but because it communicated so strongly the message, "If I had it to do over again. . ."

When dealing with borrowers or prospective borrowers, a loan officer would do well to measure his words and actions by the test "What would the jury think?".

In nearly every lender liability case, there is an allegation that the lender has, in some way, deceived or defrauded the borrower. Measure your words carefully. Say what you mean and communicate in a clear way that will minimize understandings.

Consider the following scenarios:

• Bob, a long time customer calls, and says, "Hey. I'm going to need a new loan to be able to buy this new building I've found. It will be perfect for the expansion of my business. Can you fix me up?" You want to avoid making any statement in reply that would lead Bob to assume that he's as good as approved. The message you want to convey is that you will be happy to take his loan application and get it processed in an expeditious manner.
• Phyllis has always been late on her loan payments, but you've never objected or given her any idea her conduct is objectionable. The way she looks at it, you're earning extra interest, so you should be happy. When you decide to take collection action, it comes as a complete shock to her. Your internal files, however, show that this course of action has been planned for a long time. By not communicating this to your borrower, it can look like an ambush to the jury.
• You tell Acme Company, Inc. that you're willing to work with them and will continue to fund their needs under their line of credit, but shortly thereafter you call their loan. Your action precipitates a chain of events that results in the failure of the company. At that point, it's a little too late to ask yourself, "What could I have done differently that would not have had such a negative impact on the borrower?"

Document your contacts with your borrowers. Be honest and straightforward with them. Make your expectations known. Never make disparaging statements, either orally or in writing, about the borrower personally. Stick to the facts. Saying "The borrower has been past due 10 out of the last 12 months" is a factual statement devoid of emotion. On the other hand, a memo that says "The borrower is basically a scumbag who probably will default on the obligation" is supercharged with a value judgment and will not sit well with the jury. Watch out for negative characterizations and derogatory adjectives. Don't say one thing and then do another.

Meetings or conversations with borrowers should be memorialized quickly and accurately. If you have lunch with the President of Acme Company and the subject of the company's loan never comes up, don't justify the lunch expense by documenting a "loan discussion" that never took place.

The simple truth is that juries typically don't like lenders. The individuals who sit in the jury box find it much easier to identify with the borrower than the lender. They may have some preconceived notions about what the bank's real motives might be, and most of them will believe a bank is "made of money." You will need to work very hard to overcome any predisposition against your institution, and you will find it very difficult to be successful in that regard if there are documents in your files that evidence a scornful attitude toward your borrower or if testimony about your comments places them in a negative light.

The next time you're making statements in a credit committee meeting, writing a memo to the file, making a phone call to a delinquent borrower, or are otherwise communicating about a loan or a loan application, imagine that it's you in the courtroom. The jury files in to return its verdict in the case against your bank. What will it be? Your actions and statements may be the deciding factor.

Copyright, 2000, Mary Beth Guard. All rights reserved.