Patriot Act makes banks pry into new accounts

O'Neill says some customers might simply be notified that their account has been frozen.

"People could be sensitive about not being told why their account is frozen," O'Neill says. "That will happen rarely. There will be some circumstances in which it will occur where the individual is perfectly innocent. But you can be confident that when a Suspicious Activity Report is filed, that particular matter will be addressed by federal authorities very quickly.

"Consider that several hijackers opened bank accounts and obtained credit cards with false Social Security numbers just a couple years ago. If there's over-documentation now, to me it's reasonable."

Banks vs. bad guys
Krista Shonk, regulatory specialist with America's Community Bankers, says banks have long been required to report suspicious activity and the reason customers aren't told is because doing so could compromise the investigation.

Shonk says banks will continue to check all customers against a list of known terrorists and money launderers that's issued by the Office of Foreign Assets Control, but she adds that there is some concern about a list generated by law enforcement agencies of people who are merely suspects.

"The OFAC list is bona fide bad guys. The 314A is a list of people suspected of money laundering or terrorism," says Shonk. "It's flexible. The concern is these are people who are suspected. Banks need to check customers against the 314A list, but they shouldn't use it to blackmail people."

But Shonk agrees with other banking industry representatives that most legitimate consumers will hardly notice the implementation of the new regulations.

"Generally, most customers will see absolutely no change," says John Hall, spokesman for the American Bankers Association. "Banks have a long history of doing due diligence in account openings. Our industry has always had the Bank Secrecy Act, which deals with account opening procedures. This is just codifying what's already in place."

Little banks feel big pressure
But some institutions clearly are struggling to comply with the regulations.

First Community Bank in Whitehall, Ohio, has three branches and a total of 35 employees.

"It's a lot of work for a small bank," says Kristy Nugent, vice president, comptroller and compliance officer.

"We have so few people to do this. It's additional work on top of their regular duties."

Being a small town bank also means customers may be a bit more put off by employees asking too many questions.

"The customers come here because they want to know you on a personal basis, but they don't necessarily want to give you all their personal information," Nugent adds.

"They could have a checking account with us and if they come in and open a savings account or take out a loan, we'll have to go through the background check and they won't like that.

"We have signs in the lobbies saying that we'll be doing background checks. This way they can turn around and walk out."

One thing that will likely affect all customers is the increased costs involved with implementation of the anti-money-laundering provisions of the Patriot Act.

Dalbar estimates that labor costs involved in opening a new account will jump from current costs of about $7.75 to an estimated $22 under the new rules.

"One way or another, financial institutions will have to find a way to recover (the costs) and ultimately some portion will trickle down to the customer," says O'Neill. "I don't think we've seen a lot of evidence of that yet. Maybe companies can absorb a certain percentage, but on an ongoing basis, depending on the absolute cost of compliance, it's most likely customers will pay."