Tuesday, June 18, 2024

February 2021 OBA Legal Briefs

  • Closing accounts for the undesirable customer
  • Military lending rules have teeth

Closing accounts for the undesirable customer

By Andy Zavoina

Some language in this article may be considered offensive by some readers but is taken from the court documents and has not been “softened” to accurately portray the treatment some bank staff endured. The severity of the language may help explain why the bank was adamant in its actions.

We’ve all had a customer like this at one time or another. Those who berate and belittle bank staff and believe that not only are they, the customer, always right, but that they may look down on those serving their financial needs. This article explores the implications of closing an account of just such a customer. In this case it is easy to assume the customer was looking for a quick settlement from the bank to extinguish the case, but that did not happen. This legal case extended over four years and the lawsuit included not only the bank, but personally included three employees who were involved.

In my banks, management’s philosophy included the question, “is this customer profitable?” A bigger part of management’s philosophy, however, was that there was no cause for bank staff to take physical or verbal abuse from customers. I believe most banks have this basic tenet. Could a customer have a bad day – sure. And that was excusable because we are all human, but if there was a track record of abuse toward staff, we would close the account. Some customers are high maintenance and low profitability and the bank does not have an obligation to serve everyone, especially when it demoralizes staff and costs the bank money to do so. Account closure is what was done in the case of this Texas customer and the customer challenged the bank in court.

Let’s look at the specifics of a case in Texas, Denson v. JPMorgan Chase Bank. Here you will find a customer who believed they were right and could verbally abuse bank staff. In this case there was a deposit error which lasted literally only a few minutes. But the customer believed, or at least accused the teller of trying to steal from her. The customer then went on to sue the bank and, in my opinion, load the list of charges with everything imaginable, making baseless claims, failing to provide factual and pertinent evidence, and believing that providing the court with pounds and pounds of paper documents which were not supportive of their claim, made their claims accurate. Instead, they wasted the court’s time, the bank’s time and their own. The case needlessly cost everyone involved.

Customers do have a right to justice and the right to seek that justice. This case had what most of us will view as the right result, but what was the cost of getting there?


On January 13, 2017, Sandra Denson went to her bank, JPMorgan Chase, and deposited $730 with Mary Green, the teller. The cash was deposited using a cash counting machine. Unfortunately, this machine malfunctioned and held a $50 bill which temporarily reduced the amount to be deposited to $680. Denson knew this was incorrect and called Green “stupid,” cursed at her and called her a “dumb b***h” who needed her “ass whipped.” Denson said that Green required training to do her job and that Green was “going to keep that $50 for lunch.”

The $50 was discovered in the cash-counter moments later and was immediately added to the deposit. Rasheal Farris was Mary Green’s supervisor and she had another teller complete Denson’s deposit transaction. This would hopefully diffuse the tension between Denson and Green. But there had been previous incidents involving Denson during which she verbally abused bank staff. Having records of such incidents may seem petty, but it can support future actions. Bank staff would be wise to file some form of an incident report with the bank’s Security Officer to preserve memories of what occurred. This is a “who, what, when, where and why” record.

Based on the culmination of these incidents the decision to close all of Denson’s accounts was made. The bank opted to end this relationship by closing a joint savings account Sandra Denson had with her husband, Robert, and a joint checking account she had with her sister. The bank’s deposit agreement provided that, “Either you or we may close your account (other than a CD), at any time for any reason or no reason without prior notice.”

Al Ramirez is an employee of Global Security & Investigations Group, used by the bank. The bank and Ramirez prepared notices to Denson advising her of the account closure. They included a cashier’s check for the balances and a no-trespass letter for Denson so that she would not return to the bank. These were then sent using UPS Next Day Air.

Before the UPS package was delivered on January 14, 2017, Denson and her husband discovered online that their accounts were at a zero balance. They returned to the bank to inquire. Green told them that they were restricted from entering the bank and explained that the accounts were closed and an explanation and cashier’s checks for the balances was being delivered to them.

On February 17, 2017 Denson sued JPMorgan Chase, Mary Green the teller, Rasheal Farris her supervisor and Al Ramirez for wrongful dishonor of a check; conversion or, alternatively, money had and received; payment on forged signature and unauthorized withdrawal of  funds; breach of contract, breach of fiduciary duty, and breach of good faith and fair dealing; civil conspiracy/aiding and abetting; intentional infliction of emotional distress; common law fraud; negligence; and gross negligence. On February 5, 2018, Denson filed a “supplemental” petition, asserting claims under the United States and Texas Constitutions and alleging violations of the Fourth Amendment, the Fourteenth Amendment, and the right to privacy, and 42 U.S.C. § 1983.

Because Denson’s claims were in part under federal law, JPMorgan Chase moved to have the claims heard in federal court. The trial court awarded summary judgment for the bank, and Denson appealed. The CaseText document on the Court of Appeals for the First District of Texas recounts the various legal requirements each party had to make as it dissected the charges. As an example, as it relates to the claim of Intentional Infliction of Emotional Distress, it is noted, “To recover damages for intentional infliction of emotional distress, a plaintiff must establish that: (1) the defendant acted intentionally or recklessly; (2) the defendant’s conduct was extreme and outrageous; (3) the defendant’s actions caused the plaintiff emotional distress; and (4) the resulting emotional distress was severe. Extreme and outrageous conduct is conduct “so outrageous in character, and so extreme in degree, as to go beyond all possible bounds of decency, and to be regarded as atrocious, and utterly intolerable in a civilized community.” “[H]einous acts . . . except in circumstances bordering on serious criminal acts . . . will rarely have merit as intentional infliction claims.” And it goes on to indicate, “JPMorgan argued that Denson’s intentional infliction of emotional distress claim failed because Denson offered no evidence of the elements of extreme and outrageous conduct or severe emotional distress. It asserted that JPMorgan acted pursuant to its legal rights under the DAA (Deposit Account Agreement) when it closed Denson’s accounts and excluded her and her husband from the bank branch, and that such conduct cannot be extreme and outrageous. The bank further argued that, even if its conduct was actionable, no claim for intentional infliction of emotional distress was available to Denson because she could assert other contract and tort theories.”

Intentional infliction of emotional distress

On appeal this argument shifted the burden to Denson to produce the evidence for each challenged element of her claim. In her summary judgment response Denson did not reference the issues JPMorgan Chase challenged and provided no evidence to substantiate her claims. No evidence was introduced but Denson attached numerous documents including:

  1. the transcript from the federal court hearing;
  2. changes to her deposition;
  3. changes to Robert Denson’s deposition;
  4. plaintiffs’ original petition and several exhibits including:

a. pages from the Texas Secretary of State’s website related to JPMorgan Chase’s registered agent for service of process;

b. the January 13 letters from JPMorgan Chase to her confirming the closing of the accounts she owned including jointly owned accounts and notifying her of the no-trespass condition

c. a January 27 letter from her counsel to JPMorgan Chase advising that she has retained counsel and requesting that JPMorgan Chase preserve certain evidence;

d. a copy of a check written by Denson to the tax-assessor collector, dated January 12, 2017, in the amount of $526.79; and

e. a portion of Dorsaneo’s Texas Litigation guide. To her “reply in opposition,” Denson attached several of the same exhibits enumerated above as well as a portion of an email chain between counsel discussing the scheduling of depositions.

Denson attached almost 300 pages of documents to her summary judgment response while still failing to provide any specific evidence to support her case on this claim.

The law required Denson to specifically identify the supporting evidence in order to have it considered. The fact that nearly 300 pages of a response were provided was not sufficient to defeat a summary judgment. The court then noted that “concluding non-movant failed to carry burden to produce evidence raising genuine issues of material fact on challenged elements of claims against defendants for tortious interference, fraud, and conspiracy where response to defendants’ no-evidence summary judgment motion did not direct trial court to any evidence on challenged elements of her claims.” Legally the court must grant JPMorgan Chase’s motion unless Denson produced evidence that raised genuine issue supporting the claims made. This was not done.

Denson contended in her appeal that “Rasheal Farris and Mary Green acted intentionally or recklessly to cause severe emotional distress on Appellants by intentionally closing Appellant’s bank accounts which then totaled more than $53,000 in collected good funds without notice and without reason. When Sandra and Robert Denson inquired about their accounts, Mary Green did not tell them on purpose, to cause the emotional distress.” Denson stated that “she had ‘flashbacks’ since the incidents and that Green and Farris “jointly tarnished and ruined Sandra Denson’s reputation by making the above false accusations that Appellant Sandra Denson used foul language.”

Similar to the issue discussed above, the court received no evidence to support these allegations and again noted that case law does not require the court to sift through the documentation provided to determine what evidence may be there. The court documents stated, “We conclude that Denson did not carry her burden to produce evidence raising a genuine issue of material fact on the challenged elements of her intentional infliction of emotional distress claim against JPMorgan. Accordingly, we hold that the trial court did not err in granting summary judgment in favor of JPMorgan on this claim.” This statement was in fact similar to the conclusion noted on the other issues Denson appealed as well. I will not go item by item with the exception of the “fiduciary duty” a bank has to its customers and the claims of fraud because of the severity of the claims.

Breach of fiduciary duty

Let’s first review the facts of the case and then some of the media response.

In court, proving a breach of fiduciary duty required Denson to meet three criteria. First, establish that a fiduciary relationship existed between the Denson and the bank. Second, the bank must have breached its fiduciary duty, and lastly the breach must have resulted in injury to Denson or benefit to the bank.

JPMorgan Chase argued that this relationship required no fiduciary duties and there were no damages that resulted from the transaction or closure of the account. The bank believed this was a “creditor/debtor” relationship and the actions taken by the bank were allowed for in the deposit account agreement. This argument then shifted the responsibility of providing evidence to Denson. As noted above, again there was no evidence provided to these arguments and the word “fiduciary” did not even appear in either of Denson’s summary judgment response or reply. One challenged item was responded to as Denson stated that “the Bank owed Sandra Denson and Robert Denson a fiduciary duty.” This was a statement and no evidence was provided to substantiate it. There being no real rebuttal and no evidence to support the claim, the court favored the bank.

Investopedia defines a fiduciary as an, “…organization that acts on behalf of another person or persons, putting their clients’ interest ahead of their own, with a duty to preserve good faith and trust. Being a fiduciary thus requires being bound both legally and ethically to act in the other’s best interests.” Bankers are often included as an example of a fiduciary, but in this case the bank was never acting on behalf of Denson as to managing her money or investments, hence the bank’s “creditor/debtor” perspective.

The Editor of gsiexchange.com published a similar article as many other legal websites did, but gsiexchange.com noted, “In a landmark decision that ruled in favor of JP Morgan Chase, courts decided in Denson v. JPMorgan Chase Bank, N.A., that THE BANK DID NOT OWE ANY “FIDUCIARY” DUTIES to the plaintiff, one of the bank’s depositors…But clearly, the article is spinning the narrative in a way that does Denson and other depositors a significant injustice. Given that wealth is a relative concept, what if we scaled her deposit amount to $750,000? And what if $50,000 went missing due to human error? Any depositor might have taken Denson’s route, calling that teller the B-word. But aside from that, the real issue here is that the court ruled in favor of JPM because the bank is NOT a fiduciary. If JP Morgan Chase bank is not a fiduciary, then why are Americans depositing millions of dollars into the bank (and other similar banks) when–as non-fiduciary institutions-they are not held legally responsible for acting in the best interest of their depositors? This is a blatant injustice.” I must add that this website is for a business which deals in precious metals and the editorial comments closed with a solicitation to withdraw all funds from banks, for each person to be their own fiduciary and to invest those funds in precious metals. But if social media were to pick up these comments, I suspect the closing solicitation would be omitted.

If this were your bank, management and counsel would need to decide if any information for your employees, banking customers and market area was needed. In a pure deposit relationship. it can be argued that the bank was not managing the funds and the FDIC insurance protected the deposits. The bank offered no financial or investment advice, unlike the editorial comments themselves. But there may still be those who want to change the facts in such a way that would require other changes to the case. It is unlikely that $50,000 would become jammed in a cash counter and if a complete deposit was not counted for some reason, but that error was found and corrected in a matter of moments, was any fiduciary duty breached?


In the claim of fraud, there are six elements to be proved:

  1. Was a material misrepresentation was made?
  2. Was the representation false?
  3. When the representation was made, did the bank either know it was false or make the statement without knowledge of the truth?
  4. Did the bank intend that the representation to be acted upon?
  5. Did the customer act in reliance on the representation?
  6. Did the customer suffer any injury?

The bank argued that Denson provided no evidence of any fraudulent misrepresentation, there was no reliance on statements made about the deposit accounts and there were no damages incurred. The only possible misstatement was that the deposit was $50 short but that was rectified within minutes and before Denson ever left the bank on that day of the deposit.

Denson claimed fraud against the teller and supervisor, Green and Farris, claiming that they made fraudulent accusations that Denson used foul language and threatening behavior. Denson failed to argue that at the trial court and therefore could not appeal it after that. As a result the appeals court found for the bank and its employees on this issue.

In this case the claim was invalidated because it was not initially argued but a bank would be wise in such cases to gather evidence and hold it for some period until it knows no claims were made or could still be made. This is why having statements and video and any other evidence collected immediately after an event is a sound procedure. I was taught that the palest of inks is better than a person’s memories, and this would hold especially true four years later.

Breach of contract

Denson’s claims of a breach of contract were also nullified as she claimed the bank had a duty to provide a copy of her deposit account agreement before the accounts were closed. No evidence on her part was made to support the claims, but again a bank would rely on its procedure to always provide such documents when an account is opened.

Can the bank close any account?

The OCC maintains a consumer information website, HelpWithMyBank.gov and addresses the question by simply saying “yes.” It does expand on that to say that generally accounts may be closed for any reason and without notice. It urges customers to review the agreements they have with their banks and to contact the OCC if they feel their account was wrongfully closed. So while there is support for a bank to end a relationship, it is still open to dispute.

Your deposit agreement likely has a clause similar to this:
“We reserve the right to close your Account at any time for any reason. We are not responsible for any items, checks or EFTs returned after your Account has been closed. YOU SHALL INDEMNIFY AND HOLD US HARMLESS FROM ALL CLAIMS, DEMANDS, LAWSUITS, LOSSES, COSTS, EXPENSES AND ATTORNEYS’ FEES WE SUFFER OR INCUR IN CONNECTION WITH OR RELATED TO CLOSING YOUR ACCOUNT.”

While necessary and in cases like the Denson account, very helpful, this may not be enough to satisfy a jury box filled with bank customers. The bank needs a good reason to close a customer’s account and there may be steps and timelines which must be followed.

Consider the Federal Government Participation in the Automated Clearing House rules, 31 CFR 210, which applies to all entries and entry data originated or received by a federal agency through the Automated Clearing House (ACH) network, with a few exceptions. The key statement in the applicability of the rule are “applies to all entries and entry data originated or received by an agency” (the emphasis is mine) and “agency” is a defined term which includes any department, agency, or instrumentality of the United States Government, or a corporation owned or controlled by the Government of the United States, excluding the Federal Reserve Bank.  You may have customers receiving direct deposits of government benefits making your bank subject to this because of the agency sending you the deposits.

What this means to you is that 30 days’ notice (or longer if the account agreement provides a longer period) could be required except in the case of fraud.  Refer to § 210.4(c)(3):

(c) Termination and revocation of authorizations.  An authorization shall remain valid until it is terminated or revoked by:

(3) The closing of the recipient’s account at the RDFI by the recipient or by the RDFI. With respect to a recipient of benefit payments, if an RDFI closes an account to which benefit payments currently are being sent, it shall provide 30 calendar days written notice to the recipient prior to closing the account, except in cases of fraud; or…

So the bank may not be able to close applicable accounts unless there is fraud, without first providing a 30-day advance notice to your customer. That was not the situation in the Denson case, but before closing an account, the bank must be aware of this rule and have a procedure to follow when applicable.

Bank staff must also be aware of all the agreements and all the disclosures that are provided to customers. How else can requirements and agreements like closing an account be enforced? Customers have the right to choose where they bank and a bank has the right to choose who it will do business with.

In Denson v. JPMorgan Chase Bank, the bank and three of its staff members went through four years of litigation to remove one customer who was rude, abusive and threatening to staff. The cost of litigation is not cheap and no bank or person subject to a lawsuit wants the lowest-cost attorney representing them. Well written and enforceable agreements are necessary both to protect the bank and its customers and to eliminated ambiguity. They may not eliminate litigation such as the Denson case, but without them, that case could have taken even longer to be resolved.

Military lending rules have teeth

By Andy Zavoina

Let’s talk for a moment about 2,175,000 reasons to follow the letter of the Military Lending Act (MLA). In dollars, those are the reasons Omni Financial is paying for not following the rules.

On December 28, 2020, the CFPB entered into a Consent Order (File No. 2020-BCFP-0028) with Omni Financial of Nevada, Inc., also doing business as Omni Financial and Omni Military Loans. Loans were being made to active duty servicemembers or their dependents who are protected by the MLA. Omni makes tens of thousands of loans annually ranging from $500 to $10,000 for terms of six months to three years.

One issue the CFPB had with Omni was a requirement for some borrowers to repay by allotment. Section 232.8 of the Department of Defense’s regulation, “Limitations on Terms of Consumer Credit Extended to Service Members and Dependents and specifically section (g) prohibits this.

Title 10 U.S.C. 987 makes it unlawful for any creditor to extend consumer credit to a covered borrower with respect to which:

(g) The creditor requires as a condition for the extension of consumer credit that the covered borrower establish an allotment to repay the obligation. For the purposes of this paragraph only, the term “creditor” shall not include a “military welfare society,” as defined in 10 U.S.C. 1033(b)(2), or a “service relief society,” as defined in 37 U.S.C. 1007(h)(4).

Keywords here are “requires as a condition” and you simply cannot do that. Procedures should be written such that the borrower may offer to pay by allotment, but they should know that it is not a requirement to receive a loan.

If you are wondering why allotments are preferred by lenders, “back in the day,” servicemembers had direct deposit and could set up allotments for specific payments. This eased the burden on the borrower who could be deployed or otherwise not available to handle routine personal financial matters because of their military duties. It seemed like a win-win because the borrower would always have their debt paid and nobody had to worry about calls and letters for debt collection. Additionally, a good credit rating is good for a military security clearance. A poor credit rating is definitely a problem. The servicemember receives a known amount of monthly pay and benefits. The allotments would be paid and the remainder was direct deposited to their bank.

Some servicemembers realized that if they were to receive an Article 15 (judicial punishment) which included pay forfeiture that fine would be deducted after allotments were taken out. As a result, many servicemembers would start an allotment to their spouse as an example for all but $100. That way the household always had money and forfeiture of pay was never more than $100. The allotment could easily be deposited at the bank if desired. So allotments were a better way of being paid monthly.

Eventually the government realized a lot of work goes into making allotments and correcting allotment problems that sometimes arise. They found that some lenders, especially those with high interest rates would require allotments and even charge fees to be paid that way. As a result certain allotments are prohibited, such as to purchase or finance vehicles or appliances; and others are not limited, such as for mortgage or rental payments on real property, dependents support and for a variety of other items.

Omni lenders would tell their borrowers, 90 percent of whom were covered borrowers under the MLA, they had to pay by allotment to be approved and 99 percent of active-duty borrowers did set up allotments for their Omni loans.

Not all of Omni’s borrowers were military. What is a civilian equivalent of an allotment? It would be when a lender requires an borrower to authorize electronic funds transfers (EFTs) for payments in advance. Yes, Reg E, which civilian banks are very familiar with, also comes into play in the Omni case. Omni required every borrower to provide information on their bank account routing and account numbers. Each contract included the authorization for Omni to initiate an EFT which would automatically be initiated the first business day after any missed payment.

Reg E prohibits a lender from conditioning a loan on repayment by an EFT. § 1005.10(e)(1) – No financial institution or other person may condition an extension of credit to a consumer on the consumer’s repayment by preauthorized electronic fund transfers, except for credit extended under an overdraft credit plan or extended to maintain a specified minimum balance in the consumer’s account.  

The result of Omni’s violations of the Defense Department regulation and of Regulation E is more than a fine. Omni must stop conditioning loan approvals on military allotments and EFTs. They must write to each borrower with an outstanding loan and clearly and prominently inform them of the Consent Order, offer different repayment options, list all the methods available to repay the loans, and provide the options the borrower may select. They are also prohibited from drafting funds from a borrowers account without a new, written authorization from the borrower. Similarly, allotments will not be accepted from a military borrower without a prescribed written authorization with a notice that it may be stopped at any time.

There were more training and compliance requirements in addition to the civil money penalty of $2,175,000.

On a related note, David Uejio, the acting director of the CFPB, has made it clear in a statement he shared with everyone at the Bureau and posted on the Bureau’s website on January 28, that the Bureau will be “reversing policies of the last administration that weakened enforcement and supervision. As of today, it is the official policy of the CFPB to supervise lenders [subject to Bureau supervision] with regard to the Military Lending Act.”