Your customer gets involved in a dispute with a former business partner and the next thing you know, you are being dragged in because you have years of records that one side or the other wants to prove their case. You have no liability, but your employees waste hours, or days, collecting information, appearing for depositions, or testifying in court. On top of that, you may have legal fees just to make sure that you comply with court orders or legal processes. In at least one case we had a few years ago, a judge ordered our client to have an attorney and a bank officer appear in court to explain the bank’s record-keeping system and the regulatory record keeping requirements, even though the bank was not a party to the case and no claim could possibly have been made against the bank. Many banks suffer these expenses with no clear legal right to reimbursement because of poorly worded deposit account agreements or loan agreements. Time after time we see contract provisions that require reimbursement for expenses incurred when there is a dispute between the bank and its customer. However, more often than not, these contracts do not require reimbursement of expenses when a bank is dragged into a dispute in which no claim is asserted against it.

Today’s Takeaway? You can protect yourself against these expenses, at least when your customer is solvent, by including broad reimbursement provisions in your deposit and loan documentation. Be sure that any reimbursement requirement covering costs and expenses for compliance with legal process covers all matters related to records maintained by your bank, “regardless of whether the bank is a party in such action and regardless of whether any claim is asserted against the bank.”