I am currently undergoing a ridiculous ordeal with Chase Bank. A situation that is so absurd, it should embarrass the entire banking industry. Bear with me as I take you through it, I’m going to give you as many of the steps as possible so you can appreciate the ride for yourselves.
(if you want the abridged version, skip to the end for the most recent bits)

Early this week, I received a call from someone claiming to be from Chase (this was supported by the caller ID) He informed me that “Chase Risk” has reviewed their policies and decided to sever relationships with certain types of businesses, specifically third-party providers, because they were considered “high risk”. They determined that, as a payroll company, my business is a third-party provider and they would no longer host my account.

He repeatedly told me it was nothing I had done and I shouldn’t take it personally. He admitted that my account is blemish free and so should be the type of account they would normally want to keep. He could not come up with an explanation as to why my business was suddenly a risk.

After a lot of back and forth that went nowhere, he said he would take my cell number and check with a supervisor for more info. I was very angry for a while, but on my drive home I started to think it was too absurd to be real.

• I called my local branch (Branch A), who said they had never heard anything like that and I should call the branch where I opened my account.
• I called that branch (Branch B), and they also said they had no idea what the call was about but directed me to customer service, just in case.
• I called Chase Customer Service who said they weren’t aware of any such thing, but that it sounded like their verbiage. They directed me to Chase loss prevention.
• I called Chase Loss Prevention who said there was no program like that to their knowledge and the phone number from my caller ID didn’t track back to any of their departments.

So, at this point I chalked it up to a hoax or phishing attempt. Perhaps they thought I would be so distraught I’d be willing to give up confidential data to “verify” my account? I figured they didn’t get the reaction they wanted and so that would be the end.

Two days later, I got a call from a business banker at Branch A telling me that “Chase Risk has evaluated our accounts and has determined that we must sever relationships with all third-party providers. As such, we will be closing your _____________ account in the next 30 days.” I could not get her to tell me how the decision was made, or give me anyone to talk to that had the information or power. She just kept telling me that businesses in my sector were considered a risk – though she could not expand on what exactly that risk might be. Had to hang up on her due to my growing level of frustration.

At this point, all I am left with: “Your business is risky”

You know what? All businesses are risky, particularly to the business owner. They are also most risky in the early years, not after more than 6 years of stable operation.

My business consists of me providing a service, billing a client, receiving a check, and depositing it in my account. There is no more risk to Chase Bank from my processing payroll than there would be if I sold Avon or mowed lawns.

At this point, I had resigned myself to the fact that I must relocate my accounts. Of course, that means moving ALL my accounts, not just the one in question, because I have no intention of doing business with a company that doesn’t want to do business with me.

Friday, I got a call from a business banker at Branch B. He was calling because it seems that first call I had received was from his underling who was concerned at how upset I had become and passed my number on. He wanted to see if there was anything he could do for me, but was reiterating the fact that my account would be closed. Again, he was unable to explain how my account suddenly presented a risk.

He did tell me, though, that the change was because of a new OCC regulation that required them to monitor the business practices of their third-party providers and, since they were unable to monitor the business practices of all their customers who provide those services, they were electing to cease servicing them. He tells me repeatedly that the decision was based on government regulation over which Chase had no control.

Now, far be it for me to doubt our government’s willingness to crush businesses, but this seemed too odd. I spent the day researching and found several things.

The “regulation” he mentioned is not a regulation, so much as a regulatory suggestion. It also is at least a decade old. It states that banks, in order to maximize profit and utilize broader expertise, have turned to third-party providers for such things as loan origination, credit card processing, and foreclosure services. This presents risk, in their estimation, because customers perceive they are doing business with the bank itself. If proper business procedures are not followed, the bank would be at risk. Therefore, banks are obligated to monitor the activities of any third-party providers. They state, very clearly, however, that they are referring to third-party providers operating on the banks behalf, or at their behest.

The “new” piece of the puzzle is the Risk Review issued by OCC (apparently the first one they’ve ever bothered to publish) In the report, they claim banks are under pressure to be profitable and so are being lax with their oversight, specifically with loan origination and third-party providers – who they again clarify as working on the bank’s behalf.

In other words, if I was processing the payroll for one of their branches, or they were recommending my services to their depositors, they would be opening themselves to risk and would be obligated to monitor my practices (or cut ties if they were unable). As it stands now, however, my business as a payroll processor presents no more risk to Chase Bank than it would if I sold cupcakes.

So, did a Chase executive read the Risk Review, misread the regulation and panic, flagging all business accounts they thought might provide third-party services for closure? Unlikely. Banking execs are not always known for making great decisions, but such horrible reading comprehension seems a bit much, even for them.

Did a Chase executive read the Risk Review, decide to sever ties with the third-party providers they had previously used? More likely. Said exec sends out a memo to the effect “We have decided to sever business relationships with all third-party providers”, but they don’t clarify what that means. Whether they simply don’t think to include a definition or consciously don’t believe it is necessary, they are clearly wrong.

When that memo reached the regional level, it was read to mean that any business account associated with any kind of third-party provider, rather than just those they are obligated to monitor, will be closed.

This incident is a serious indictment of the current lack of critical & independent thought. Several people at multiple branches received direction to, basically, flush a large group of good, long-term customers and they all followed through without the slightest hesitation. None of them thought to question the action, none of them asked for more information. Not one of them was willing to look at MY case, or MY accounts, and consider ME as an individual, a good customer. Not one of them even felt a blip of remorse about what they believed their employer was doing.

It may turn out that I am wrong about this.
It may turn out that I am right and Chase will still sever the business “relationship”.

But, I’ll be damned if I am going to just let something like that slide without putting up a fight – and doing a bit of research.

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UPDATE (2/1/13): Just received a debit card for the business account Chase is threatening to close. Still, as yet, have not heard back from the business bankers for whom I left messages. Someone should be able to tell me “Yes, you are right” or “No, you are wrong”. Of course, that would involve someone understanding the situation.

UPDATE (2/7/13): It appears I finally called to the right person and my accounts won’t be closed. I am planning on writing a full recap, but as of 2/24 I am still not sure what all needs to be said.

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UPDATE (1/30/13): Adding excerpts below for those who prefer not to slog through the linked papers:

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