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Banks walking 'a fine line'
Anti-terror tactics led to tougher ID rules, a shift away from paper
By TED GRIFFITH, The News Journal
Posted Sunday, September 10, 2006
In late 2001, just a few months after the Sept. 11 terrorist attacks, a letter from the IRS arrived for Lina Paredes-Wilson.
The letter put her family's business -- Mi Ranchito Mexican Food Market in Newark -- on notice that it would have to register with the federal
government if it wanted to continue to provide a check-cashing service to customers.
Next, her bank was telling her about a host of new requirements, and she had to submit a lengthy licensing application to state banking regulators,
including information on the backgrounds of employees.
"We didn't know what was going on," Paredes-Wilson said. "It had never been like this before."
In the five years since the Sept. 11 attacks, federal and state banking regulators have ratcheted up scrutiny of almost all aspects of U.S. banking in
an effort to cut off financing of terrorism.
Sweeping new banking laws and regulations have had a ripple effect on consumers, who face more stringent requirements for identification when
they open accounts, and on small businesses, such as Mi Ranchito, that are involved with check cashing or wiring money.
And banks are now responsible for ensuring their customers, the small businesses that cash checks or wire money, are in full compliance with new
In the past, regulators wanted banks to focus on spotting tax evaders and drug dealers. But after Sept. 11 "the emphasis is now really skewed
toward identifying potential terrorist activities," said Rita C. Turner, executive vice president of client services and marketing at Wilmington Trust,
the state's largest retail bank.
"It's a whole new attitude on the part of regulators and a whole new set of regulations," Turner said. "It's a fine line that we have to walk, as an
industry, between respecting privacy and fulfilling our obligations under the regulations."
The controversial Patriot Act, passed just a few weeks after the Sept. 11 attacks, imposed new requirements, including mandating tougher
standards for verifying customers' identities. Banks, for example, must have customers' home addresses on record, a P.O. box is no longer
Supporters of the law say it helps stop terrorists from using the U.S. financial system to fund their activities. Critics have complained the Patriot Act
represents an unwarranted intrusion into Americans' private lives.
And the Sept. 11 attacks changed banking in another respect, accelerating the shift away from paper check processing toward electronic
processing, said Mike Collins, a senior vice president of supervision and regulation with the U.S. Federal Reserve.
That's because the grounding of air traffic in the days after the attacks prevented banks from shipping paper checks across the country. In 2003,
Congress passed legislation, known as Check 21, that made it easier for banks to shift from paper to electronic processing.
While there have been new laws, bankers said that many post-Sept. 11 changes are a result of greater emphasis on laws and regulations that had
long been on the books. For example, regulators are stressing the importance of a federally maintained "watch list" of organizations and individuals
suspected of ties to terrorism or other illegal activities. Banks are supposed to report to regulators when a person or organization on the watch list
carries out a transaction, such as a wire transfer.
The watch list existed before the Sept. 11 attacks, but the number of organizations and individuals on it has expanded in the past five years, said
Stephen A. Fowle, chief financial officer with WSFS Bank, one of Delaware's largest banks.
Banks have greatly increased "suspicious activity reports" through a program first established in 1996, said Laura Bruce with North Palm Beach,
Fla.-based Bankrate.com, which tracks the industry. The number of reports going to federal authorities soared to 522,655 in 2005 from 203,538 in
2001, according to Bankrate.
Banks have increased their reporting to avoid multi million-dollar regulatory fines, Bruce said.
"The regulators have clamped down on banks, and there have been some very heavy fines," she said. "A lot of the banks seem kind of scared."
Almost any transaction that's seen by a bank as suspicious, such as a cash deposit that's several thousand dollars over what's typical for a
customer, can trigger a report to regulators, according to Bruce.
Although privacy protections have diminished, the new regulations haven't caused major disruptions for most consumers, Bruce said. She said
consumers should do their banking as they always have and not get alarmed about increased scrutiny.
"If you're doing a legitimate transaction, go ahead and do that," Bruce said.
Bankers themselves say they've tried to head off customer concerns by educating them about the post-Sept. 11 changes, taking steps such as
posting notices in branches about the new identification requirements.
"We're explaining to clients that this is for their safety and the safety of the country," said Michael Walsh, a regional branch manager with
Although bankers are feeling an increased regulatory burden, they say they have tried to minimize the effect on customers.
"I would hope, from a customer standpoint, it's been transparent," said Lisa Brubaker, vice president of retail operations with WSFS.
But, for at least one group of customers, the changes have been anything but transparent. Small businesses that cash checks or wire money have
found themselves under regulatory glare out of concern that these businesses, which had been lightly regulated, could be used by terrorists to
transfer or launder money. And banks have felt pressure from federal and state authorities to ensure these businesses, which often cater to
Hispanic consumers, are living up to their new obligations. The businesses need banking services to access cash and make deposits.
Since it opened in 1998, Mi Ranchito in Newark has offered check cashing as a convenience for customers of the store, which sells food and
Western-themed clothing and boots. Getting the check cashing license had been hassle-free and cost just $75, said Paredes-Wilson, the store's
But then, almost five years ago, the rules changed. Paredes-Wilson said she's had to submit multiple pages of documentation and now pays $700
annually in fees to operate the check-cashing service. She said her bankers at Wilmington Trust helped her decipher regulatory jargon and fill out
applications, but still the process wasn't easy.
"We were jumping for joy when we finally got our new license," she said.
Paredes-Wilson said she's skeptical about whether the additional red tape will reduce the risk of terrorism in the United States, but she said
businesses such as hers have little choice about complying. She said customers had come to expect the check cashing and might have gone to
competitors if Mi Ranchito had dropped the service.
"It does put a strain on us," she said of the regulations. "But in order to stay in the business, we have to follow the rules. We're doing our job."
Contact Ted Griffith at 324-2880 or email@example.com.