Two for One: Customer Information and Other Regulations

Customer Information, a.k.a Know Your Customer, has been at the core of what we call dueling regulations. On the one hand, knowing your customer means asking some questions or collecting some information such as copies of a driver's license. On the other hand, Regulation B says that, under many circumstances, you must not ask those questions or compile that information because it reveals information about the customer's race and gender.

These Regulation B rules were established to minimize the opportunities for discrimination. The thinking was that what the loan officer didn't know couldn't be used to hurt the customer.

The information restrictions of Regulation B have always had complications. The delivery of financial services requires knowing something about the customer. This includes determining that the customer is who he or she claims to be. This is important for the safety and soundness of the financial institution.

The challenge has always been how to strike the optimal balance: how to avoid or prevent discrimination while being sure you know with whom you do business. This brings us right to what we know about the customer and how we know it.

Some form of mandatory customer identification program is coming. We actually have a fairly good idea of what it will look like. The recent CIP proposal, although changed from the Know Your Customer proposal, contained many familiar elements.

One basic element of any program, whatever it is called, will be compiling proof of the customer's identity. "What did you know and when did you know it" is the fundamental element of any customer identification program.

Also important, for purposes of banking, is what do you learn when you look at certain documents that are presented to establish a customer's identity. We easily - and blindly - look at and accept documents for what we think they tell us because we are familiar with them and used to them.

Now, more than ever before, we should think carefully about what we do or don't actually learn from forms of identification. We also need to give careful attention to what we can and should do to verify customer identities beyond what they provide. This has ramifications on almost every department and function within the institution. It will have an impact on how we interact with customers and what we do with our information and impressions. Set out below are some training discussion ideas to get people thinking - and working. Ask trainees for their ideas. You'll find your students can add some valuable suggestions.

What do you learn from specific pieces of identification?
- A driver's license tells you the person is licensed to drive and produced information that satisfied the department of motor vehicles.
- A passport is designed to be a piece of identification and tells you physical information to identify the individual. It includes citizenship and address.
- Employment ID cards identify where the customer works. Match that to other information the customer provides about income.
- Student ID cards tell you where the customer is going to school and when they are expected to graduate.
How can you tell whether identification is valid or forged?
- Be familiar with identification designs. Know what local driver's licenses should look like.
- Look closely at documents for alterations.
- Consider the information and whether it is internally consistent - and matches the person you are looking at.
What documentation should you use to verify the identity and status of businesses when opening an account?
- Tax returns establish that the business filed with IRS as well as indicating the income.
- Local and state governments have licensing requirements. Ask for copies of the certificate of incorporation and the business license.
- Verify the identity of the individuals representing the company.
Documentation to identify legal status of customers for account ownership purposes.
What documentation can you use to verify information about and sometimes evaluate the creditworthiness of borrowers?
- Utility bills show the customer's address and the fact that the account is (or isn't) current.
- Tax returns show what the customer told the IRS about income and related details.
Discuss other information sources, such as library cards, voter registration cards and club membership cards.
Decide whether the information makes sense.