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Something Doesn't Add Up in NY Times Article

posted by Adam Levitin

The NYTimes has an article about how many consumers and small businesses have been getting their deposit accounts shut down and lines of credit cut off without explanation.

Something here doesn't add up. Banks have an obligation under the Equal Credit Opportunity Act and Regulation B thereunder to provide customers with "adverse action" notices if they terminate a line of credit. Those notices either have to provide an explanation of why or a notice of how the customer can get an explanation (for small businesses, that notice can be in the application itself). ECOA/Reg B apply not just to consumer credit, but business credit as well. Now, ECOA/Reg B does not cover deposit accounts, but if a bank cuts off both a deposit account and a line of credit, it would have to provide an adverse action notice about the line of credit.

So something here doesn't add up. Either banks have been failing to comply with ECOA or customers have checked their mail or haven't been forthright with the journalists. Large scale non-compliance with this sort of ECOA provision seems unlikely, as this is an easy-to-automate rule, where the cost-savings from noncompliance would be minimal. So, I suspect that something funny is going on on the consumer end, although, to be fair, an ECOA adverse action notice doesn't have to be particularly illuminating about why the bank took the adverse action.

Comments

Adam: I initially shared your skepticism about the article, but there was a post on the NABT listserv this week from a Chicago lawyer who represents trustees, who said Chase froze and closed his firm's operating AND trust accounts and has failed to provide him a reason. So perhaps there is something going on.

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