The nature of the relationship between a bank and its customers is rooted in trust and confidence. Banks owe a fiduciary duty toward their customers.
A fiduciary duty refers to the legal or ethical obligation of the bank to act in the best interests of the customers. The bank is the fiduciary, and the customer is known as the beneficiary.
When a fiduciary relationship is created, the beneficiary entrusts the fiduciary with the responsibility to manage and protect assets (such as money or investments) on their behalf. The fiduciary role is entered into voluntarily and gives the bank great power and authority over the assets of a trust, estate, or customer.
Correspondingly, with this great power come great duties and responsibilities. These duties include:
- A duty of obedience to any written agreements with customers
- A duty of candor and full disclosure of facts relating to a customer’s accounts
- A duty to properly manage, supervise, and safeguard money or other assets
- A duty of loyalty
The duty of loyalty requires the bank to prioritize the customer’s interests above all else. The bank must not make any decisions that could negatively impact the customer or serve the bank’s personal interests.
The bank must notify the customer of any conflicts of interest that could compromise their judgment or lead them to make decisions that might benefit the bank at the expense of the customer.
Can I Sue My Bank for Negligence?
With a few caveats, the general answer is yes, you may sue your bank for negligence. You may also sue a bank for incompetence, which is a form of negligence.
To begin a formal conflict with your bank, first read your account agreement carefully. You will have received this when you open the account. If you no longer have a copy, the bank must give you one if you ask for it.
Most of these contracts have an arbitration clause. This means that in most instances, you will not be able to sue the bank until you have gone through the arbitration process. If you try to file a lawsuit, the judge will dismiss your claim and tell you that you have to go to arbitration.
With arbitration, the outcome of the dispute is in the hands of a set of one or more arbitrators. Arbitrators hear witnesses and read documents, just like a court would.
They issue a decision that is binding on the parties unless an appeal is available. Note that there are some situations where you can skip the arbitration process, such as if the bank discriminated against you.
You may also file a claim with the government. You can make a submission to the Financial Ombudsman Service (FOS). The FOS is an independent federal government body which specifically deals with complaints against financial institutions. The FOS will request information from both sides and investigate the merits of claims based on the information they receive.
The second option is to initiate legal proceedings. It is possible to take legal action if the FOS has already been pursued, but you were not satisfied with the outcome. You may also sue if you are dissatisfied with the decision of the arbitrator.
Can I Sue My Bank for Malpractice?
The term “malpractice” is often used when speaking about mistakes made by doctors, lawyers, or accountants. However, this professional negligence is also something that pertains to those in the banking and finance industry.
Bank malpractice occurs when a banking professional is negligent in their work, and this brings some form of harm to their client’s assets. Malpractice cases may also be filed if the bank committed some kind of fraud.
If a banking professional ignores the norms of the industry they work in, then their customers could file a suit for professional negligence or malpractice. Lawsuits against banks can badly affect a bank’s reputation.
While banks have protections against malpractice suits (e.g., defenses, insurance), stories involving professional malpractice do not bode well for their reputation and overall consumer trust. Also, accountants can face a malpractice claim if they violated their duties as accountants.
Note that banks can be protected from claims by the “business judgment rule.” That rule says that even if the banker blunders, they will not be liable unless the challenged decision involves fraud, illegality, or self-dealing. The business judgment rule holds that a bank’s good-faith lending decisions are protected from liability, even if the loans or investments turn bad and cause customer losses.
Can I Sue the Bank’s Accountant for Malpractice?
Accounting malpractice cases may present significant legal issues and disputes for a bank. This is because accountants are generally responsible for tracking important monetary and financial data for the customer and for the bank. If a bank’s accountant were to commit accounting malpractice, it may cause the customer large losses in income, savings, investments, and other assets.
Similar to an attorney and other types of professionals, an accountant may be sued for accounting malpractice. The accountant may be sued if they fail to provide services at a level expected of a reasonably competent accountant.
Additionally, an accountant may be held liable if they disregard their normal duty of care as an accounting professional. Accountant malpractice can include several specific types of conduct, including but not limited to:
- Combining funds from different accounts, referred to as commingling
- Using a client’s financial account for their own personal gain
- Committing fraud or misrepresentation
- Various types of tax violations, such as tax fraud
The two most common types of accountant malpractice include GAAP and GAAS violations and securities violations. Accountants are required to follow specific accounting rules and regulations outlined by the Generally Accepted Accounting Principles (GAAP) and Generally Accepted Auditing Standards (GAAS). If an accountant violates these rules, they could be found liable for malpractice.
What Are Some Steps to Take to Prepare for a Lawsuit?
When an individual is preparing for a lawsuit against their bank, including a bank malpractice lawsuit, there are some steps they should take, including:
- Consult with an attorney, as they can provide guidance on what documents and information may be important
- Review any account agreements that the individual signed
- Gather evidence that may support the claim against the bank, such as:
- transaction logs
- agreements
- contracts
- any other documents the parties signed
An individual’s lawyer will give them additional advice regarding what documents and information may be important for their specific claim.
What Claims Could Be Filed Against A Banker Who Has Committed Malpractice?
When a customer deposits money into the bank, this money is on loan to the bank, and the bank’s most important obligation is to properly manage the account. If the bank does not do so, it may have committed malpractice. Examples of banker malpractice include:
- The bank refuses to refund money to a customer following an account error
- The bank sold the customer a financial product that was unsuitable for a person in the customer’s financial position
- When a customer attempted to transfer or withdraw money, the bank made mistakes leading to financial loss for the customer
- Refusing or incorrectly allowing withdrawals
- Refusing to honor a customer’s check without justification
- Paying out a check that was not correctly endorsed
- Failing to collect the correct amount from checks and other items on the customer’s behalf
- Posting deposits in the wrong accounts
Moreover, the relationship between a bank and a customer is confidential. A bank generally cannot share customer information, such as the balance of a customer’s account, with any third party. Doing so would constitute malpractice.
What Are the Penalties for Malpractice?
Penalties for malpractice may include:
- Compensatory damages: Compensatory damages are meant to put the customer back in the position they would have been in had the bank not committed the misconduct.
- Nominal damages: This happens when the customer wins the case, but the judge or jury finds that the amount of money lost was minimal. The customer can be awarded nominal (small) damages to indicate that they indeed won the case.
- Punitive damages: These are damages meant to punish the bank. They are awarded if the bank’s conduct is grossly negligent or intentional.
What Are Some Important Things to Remember about Bank Malpractice Lawsuits?
Bank malpractice may occur when a bank or banking professional harms a client’s assets due to their negligence. Negligence is a failure to act with reasonable care, or with the care that a reasonable person would exercise in similar circumstances.
Examples of what may be categorized as bank malpractice may include, but are not limited to:
- A data breach that compromised the bank’s data
- A security failure when the bank failed to follow security procedures or if they act with gross negligence
- When the bank makes a mistake processing a wire transfer
- When the bank will not refund a client for lost funds
- If the bank makes an error when a client tries to transfer money
- When a bank employee embezzles, or steals money, from a client’s account
- When a bank sells an unsuitable financial product to a client
If an individual has encountered any of these issues, they may file be able to take several different steps, including:
- Filing a complaint with a government agency, such as the:
- Consumer Financial Protection Bureau (CFPB) on their complaint webpage
- Federal Reserve consumer help, where the Federal Reserve will forward the complaining to the proper federal regulator over the bank
- Office of the Comptroller of the Currency (OCC)
- Consult with a financial advisor who can provide an individual with advice about their issue
- Attend an arbitration, as there are typically arbitration clauses in financial contracts that prevent clients from taking immediate legal action
- Filing a suit in small claims court
A noted above, an individual may have to attend arbitration before they can take any other action. Arbitration is a dispute resolution process that the parties attend outside of a courtroom.
Arbitration clauses may be binding or non-binding. With binding arbitration clauses, the decision of the arbitrator will be final and enforced by a court.
With a non-binding arbitration clause, the parties do not have to accept the arbitrator’s decision. They can take their dispute to court for a final decision.
In addition to bank malpractice, there are other common claims that individuals can make against a bank, such as:
- Fraud: In fraud cases, false information is used to influence a credit decision, such as on a loan application, mortgage, or credit card application.
- Misrepresentation: A bank may be sued for misrepresentation if it gives a borrower false information.
- An improper credit check: The Fair Credit Reporting Act (FCRA) limits who can access an individual’s personal information and how it can be used.
- Embezzlement: This occurs when an employee of the bank misuses bank funds for their personal gain.
- Money laundering: Banks are supposed to monitor for money laundering and may be fined if they fail to do so.
The punishment banks or bank employees may face will vary depending on the circumstances of the case and the amount of money involved.
Do I Need an Attorney for Banker Malpractice?
Proceedings against banks are complicated. For example, it can be difficult to know where, when, and how you can file a complaint or a lawsuit.
As another straightforward example, to file a claim or a lawsuit, it is necessary to know what is the statute of limitations for filing a claim against a bank in your state, in a federal claim, or according to your account agreement with the bank. Your lawyer will know that information, and if the appropriate statute of limitations has passed, your lawyer will know if there is a way you can get around it.
It is important to seek independent legal advice before bringing a claim. Your best bet is to contact a securities lawyer for help and advice.
You can use LegalMatch to find a securities lawyer near you who can help you determine if you need to file a bank malpractice lawsuit. It only takes about 15 minutes to submit your issue online and, in around 24 hours, you will get responses from attorneys in your area who can give you advice and help resolve your issue.
