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Another practice of the banking industry that winds up being abused and misused is to require people—most often minorities and particularly Latinos—to document their income by depositing cash income into their bank accounts. The practice is not inherently unwarranted; it is a simple way to prevent people from inflating their reported income to defraud the bank when they run a cash business. But if one hand at the bank doesn’t know what the a hand at another bank is doing, it can lead to disaster.
According to HSI Trust it was solely to document his receiving rents from his tenants that Leonardo (who lives in California) deposited his cash in Farmers & Merchants Bank, since his tenants pay in cash by agreement. Leonardo needs the income from the rents he receives to qualify for a loan modification. Even though he can show leases and shows he receives rent on his income tax Bank of America in this case is requiring Leonardo to deposit the cash he receives for rent into a bank account to “prove he receives this income.” Leonardo has already provided notarized statements from his tenants and copies of the receipts he writes them (signed by him and the tenant) when they pay, along with tax returns. Bank of America insisted that either the tenants pay rent with checks that Leonardo would be required to copy and deposit and/or do the cash deposit he did.
Leonardo simply wanted to deposit the cash to do what is needed for the loan mod and then withdraw funds so he could pay bills and have spending money. If he simply deducted the cash he needed from the rental money Bank of America would then only count the amount of the deposit, not the full amount of the rents received.
So Leonardo is forced to deposit the full amount so there is a record on his bank statement and then withdraw what he needs. When he went to do his latest deposit though, Leonardo explained this to the teller and was told that she “would have to report him and that the bank would close his account.” The teller would not let him withdraw his own money either after he deposited it. He was also threatened with a report under the BSA (Bank Security Act of 1970) which requires financial institutions to assist the government in detecting money laundering.
All of the mortgage servicers engage in this process of requiring rent or if any other cash transaction being deposited to “verify” income. This practice disproportionally impacts minorities and in particular Latinos. HSI Trust has also seen this handled differently when the bank’s client’s last name does not identify ethnicity, by having them provide leases or statements from tenants, along with payment receipt copies and tax returns with no requirement to deposit cash.