In response to the increasing volume and sophistication of financial fraud, many banks offer services, settings, and tools that can add security to any account – including your trust account. But some bank employees aren’t familiar with lawyer trust accounts, the heightened duties attached, or even all the security features on offer at the bank. Be assertive. Rather than assume your trust account is set for optimal security by default, you may need to initiate conversation with an account specialist or ask for items by name to take advantage of some of the security features that follow.
Automated Clearing House (ACH) is a system that allows money to be electronically transferred from one bank account to another – no check required. If someone has your account number, your routing number, and another bank account, they can initiate an ACH transfer from your account. If you have no need to transfer money from your trust account electronically (i.e., you write checks for all trust debits), ask your bank to disable all ACH debits. If you have occasional need for electronic debits from trust, ask your bank to filter ACH debits so that only particular payments (e.g., court filing fees up to $100) are permitted. This filtering can minimize the risk of fraudulent activity through the ACH system.
Alerts are notices that banks send when transactions over a certain dollar amount are initiated. Typically, the notices are sent via text message, email, your online banking portal, or a combination thereof. If you don’t use your trust account frequently, setting an alert for every transaction might not be bothersome. On the other hand, if you use your trust account frequently, setting an alert for transactions over a particular dollar amount will help you avoid alert inundation. If you receive an alert regarding a trust account transaction you don’t recognize and didn’t authorize, you can quickly notify your bank and ask it to stop payment (if the transaction is still pending) or initiate a fraud dispute and refund process (if the transaction has already cleared). Then work with your bank to determine how the fraudulent activity occurred, how to prevent it in the future, how best to safeguard remaining funds in trust (see “Account Freeze,” below), and how best to handle any pending transactions or outstanding checks that you did authorize.
An account “freeze” (sometimes referred to as a “block” or a “hold”) is a restriction that your bank can place on your account to block transactions following a report of fraudulent activity. Different banks handle freezes differently, so work closely with your bank if you need to initiate a freeze to protect money in trust. In particular, you may wish to inform your bank of any legitimate outstanding checks or pending transactions and formulate a plan to avoid an overdraft. For example, you could ask your bank to leave enough money in the frozen account to cover approved transactions that haven’t yet cleared, make an exception for those transactions alone despite the general freeze, and move the remaining amount to a new trust account. Whatever plan you devise, make sure you talk with your bank about the best way to avoid an overdraft, communicate with your bank about how the plan will be executed, and notify affected clients and vendors.
The practice of handwriting checks for trust disbursements is a good way to create an easy-to-follow paper trail for trust activity, help satisfy your duty to keep complete trust records, and easily notice unauthorized transactions. But a trust check also reveals your account and routing number. If you have reservations about revealing your trust account information to a party who’s owed money, you can use a cashier’s check, which is drawn on the bank’s funds and contains none of your account information.
Monitoring your trust account regularly is perhaps the easiest way to detect fraudulent activity, and online banking is faster than waiting for your monthly paper bank statement. On the other hand, it will be easy for a bad actor to initiate a fraudulent transaction if they can access your online banking. If you take advantage of online banking, avoid common passwords and enable two-factor authentication to protect your banking login.
Positive pay is a check fraud prevention service offered by some banks – some for free, some for a cost. Although the mechanics may differ from bank to bank, the general procedure is the same: you give your bank information about the checks you have authorized, and your bank notifies you if an unspecified check is presented against your account. You then direct your bank to either honor or dishonor the check, and some banks will automatically dishonor the check if they do not receive a reply within a certain amount of time. Ask your bank if it offers positive pay or a similar service.
Some banks allow you to set a transaction limit that will trigger a call from the bank when a transaction exceeding a particular amount is initiated. If you receive a call regarding an unauthorized transaction, you can direct the bank to stop payment for pending transactions or initiate a fraud dispute for cleared transactions (similar to the “Alerts” process, above).
Wire Fraud Protection
A wire transfer is another means of electronically transferring funds from one account to another, and some banks offer wire fraud protection. The service generally consists of the bank limiting wire transfer approval to a sole individual associated with an account, calling that individual when a wire transfer is initiated, and permitting the wire transfer only if the individual approves.
Ask your bank to adjust your trust account’s security settings the way you want them. A great bank will initiate this conversation when you open your trust account (and may offer some security features free of charge). A good bank will have the conversation when you initiate it. Any other bank is a bank you don’t need to do business with. And if you notice fraudulent activity on your account, have a conversation with your bank about how to proceed and convey your responsibility to safeguard funds and avoid overdrafts. A great bank will already understand. A good bank will learn. And any other bank is a bank you don’t need to do business with.
Special thanks to Elise Bouneff of Columbia Bank and Nick Stephenson of First Citizens Bank for their contributions to this article.