The strength of the economy depends upon the smooth and predictable flow of money.  Banks are at the center of economic activity.  Not surprisingly, banks enjoy laws that favor them in many legal disputes with non-banks.  And when anyone is used to winning, they begin to expect victory.  It should be expected, therefore, that account agreements drafted by banks purport to shield them from any and all liability for any reason whatsoever.  Being so used to winning in court, and having the laws written to favor them, why wouldn’t a bank expect that a court would enforce the terms of such an agreement as written?

Recently, significant numbers of the membership of the Arab, Muslim and Chaldean communities in Michigan (and throughout the country) have faced account closures without explanation.  For anyone who has been fortunate enough not to experience this devastating situation, imagine that your bank account was closed today without warning and you no longer had use of the banking system, even for a short time.  How would you pay your bills?  You are probably accustomed to receiving your paycheck via a direct deposit into your bank account.  That will no longer happen.  Now you have to receive a check.  Where do you cash it?  What’s a money order?  You can’t pay your credit card with a credit card.  The parade of horribles is unending.

Dakhlallah.

The magnitude of the damage caused by this event increases significantly when the closed account is a business account.  Many businesses depend on real-time transaction processing.  If their business accounts get closed, their businesses may soon (as in a matter of days) find themselves bankrupt.  To borrow a line from Kanye West, who borrowed it from the movie Malcom X, “no one bank should have all that power.”

Many members of the community have sought legal counsel over this issue.  Certainly, they thought, if I have done nothing wrong and then someone has wronged me, I can sue.  This makes a lot of sense under normal circumstances.  But the perception, even among lawyers, is that banks are untouchable.  So people grumble and accept that there are forces much more powerful than them and try to pick up the pieces and move on with life.

But that analysis is wrong.  Banks don’t have unlimited power.  Banks are subject to legal limitations.  For instance, a bank may not discriminate against a customer on the basis of race, religion, national origin and so forth.  Specifically, 42 USC 1981 states, in relevant part:

All persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts, to sue, be parties, give evidence, and to the full and equal benefit of all laws and proceedings for the security of persons and property as is enjoyed by white citizens…

In addition, under 42 USC 1982, “All citizens of the United States shall have the same right, in every State and Territory, as is enjoyed by white citizens thereof to inherit, purchase, lease, sell, hold, and convey real and personal property.”  Taken together, these statutes add up to the conclusion that a bank cannot close a person’s account and tell them they are no longer welcome as a customer because this person is Middle Eastern.  They cannot subject Middle Eastern customers to more exacting scrutiny than their “normal” customers.  They cannot close the account of a Middle Eastern customer for engaging in behavior that would not prompt a second look if it was committed by a non-Middle Eastern customer.

And those overbearing account agreements that banks get their customers to sign are not a license to take your first-born child from you.  There are legal limits to the enforceability of such agreements.  Specifically, under the Uniform Commercial Code, as adopted by the State of Michigan, a bank cannot contract its way out of the duty of good faith. Under MCL 440.4103, a bank and its customer “cannot disclaim a bank’s responsibility for its lack of good faith or failure to exercise ordinary care or limit the measure of damages for the lack or failure…”

Thus, even though an account agreement drafted by the bank and signed during an initial glad-handing meeting at the local branch may purport to allow the bank to “close your account for any reason or no reason” or to shield the bank from liability “for negligence, breach of contract, misrepresentation, tort and any other cause of action,” the court will not enforce such an agreement.  And there is ample precedent for this conclusion in Michigan and throughout the country.  For example, in Stanek v. National Bank of Detroit, the Michigan Court of Appeals found that a provision giving a bank a reasonable opportunity to act on a stop-payment order, interpreted by the bank as allowing it one full day to act without incurring liability for negligence, is an impermissible exculpatory clause.

Since the economy depends so much on the predictable flow of money and the confidence of the people in the economy, it is good policy for banks not to overreach.  Banks and the economy would be better off if people had faith that if they do nothing wrong, their bank accounts will remain open.  The certainty that comes with these logical expectations will leave everyone better off.  Until that day comes, the only way to check the behavior of banks is to test their limits in court.  If you are wronged by a bank, call a lawyer who understands that you have rights in your relationship with your banker.  

— Kassem Dakhlallah is a partner with Jaafar & Mahdi Law Group, P.C.  His practice focuses on complex litigation including class actions, representative actions, commercial litigation, civil forfeiture and personal injury. He can be reached at (313) 846-6400 and kassem@jaafarandmahdi.com.