Attach A Photo To The Signature Card & Scan The Photo For Photo ID - Good Idea? - Or A Violation?

By Mary Beth Guard, Esq.

Editor's Note - In the last issue's editorial, I said that lack of communication between the security department and the lending department in some financial institutions led to the practice of photocopying licenses and attaching them to signature cards, because security might not be aware that in doing so they violated a lending regulation. I thought that was common knowledge. My phone and email inbox have been pretty busy since then! Here is Mary Beth's response.

One of the most controversial subjects in banking right now is how you balance your need to guard against fraud and money laundering by making a solid identification of your customer versus the need to guard against inadvertent violation of the Equal Credit Opportunity Act (ECOA) that could result from collecting information you are not supposed to be collecting about your customer.

ECOA's & HMDA's Cautions
ECOA prohibits discrimination in any aspect of credit on the basis of nine factors - including race, national origin, sex, and age, among others. It (and HMDA - Home Mortgage Discrimination Act - for banks that are covered by HMDA) requires bankers to collect information on race or national origin, sex, marital status and age on certain dwelling-related loans. On all other loans, however, the long-standing guideline has been that you should never collect that information because it could lead to discrimination (or the appearance of discrimination) on a prohibited basis.

Another Overdraft Problem
So, what happens when you are opening a deposit account? Well, if the deposit account carries with it an overdraft protection feature, you have an element of credit mixed with the deposit account, and that brings the ECOA provisions into play. In the past, many examiners have adamantly insisted that meant you could not copy identification documents of deposit account customers because that could lead to illegal discrimination. Now, however, we're beginning to see some softening of attitudes. The problem is, you have no way of knowing whether your next set of examiners will have a progressive attitude and okay the practice of copying IDs, or will take the position that it's a Reg B/ECOA violation.

Possible Changes Coming
This much we do know: The Treasury Department is required to promulgate regulations in the near future dealing with customer identification and verification. This issue is likely to be specifically addressed. In the meantime, if you choose to make the copies, take precautions to ensure that no decision about credit (including the decision of whether or not to pay an overdraft) could be based upon a visual inspection of the ID. You might decide to copy and keep the ID, but do so in a way where it is used for security purposes only - never for credit-related decisions.

Mary Beth Guard, Esq. is Editor of BankersOnline.com and an advisor to the Bankers' Hotline. Her law career included 13 years as a banking attorney and five years as General Counsel for the Oklahoma State Banking Department. Later, while COO of the Oklahoma Bankers Association, she authored the Legal Briefs, a biweekly publication addressing banking law issues. She is a regular columnist for the Bankers' Hotline.

Copyright © 2002 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 12, No. 6, 7/02