Banks are keeping a closer tab on your reputation than ever before - and it may explain why one cardholder mysteriously had his account shut down by Chase

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  • Over the past year, stories have piled up in online communities of credit-card super users suddenly having their accounts shut down by JPMorgan Chase.
  • The case of Bryan Sequeira seemed similar at first, but upon closer inspection proved particularly unusual and confounding.
  • Sequeira, who has a strong credit profile and doesn't game the points system to maximize rewards, was informed this summer that his accounts would be terminated by Chase.
  • But even after appealing, the company not only declined to reinstate him, they also refused to disclose why his account was being closed in the first place.
  • Unspooling the mystery behind Sequeira's shutdown shines a light on the broad power credit-card companies have to cut ties with customers, as well as how banks, amid steep fines and intense scrutiny from regulators, are using technology to keep closer tabs on customers' reputations than ever before.

Over the past year, stories started piling up in online communities of credit-card super users suddenly having their accounts shut down by JPMorgan Chase, one of the country's largest card issuers.

It opened up fervent analysis among the growing community of credit-card enthusiasts over the calculus used by card companies to sever ties with customers.

A seemingly similar tale of woe surfaced in the Facebook group "Chase Sapphire Reserve Cardholders," a closed group of more than 10,000 members that is unaffiliated with Chase.

But upon closer inspection the case of Bryan Sequeira proved particularly unusual and confounding.

"I received a letter that all my Chase cards are being closed. Has anyone else had that happen to them?" Sequeira, a 32-year-old product manager in healthcare IT based outside of Boston, posted on the forum toward the end of June.

"The letter didn't state a reason. Just that it was closing in 2 months. Waiting for someone from the executive office to call me back," he added in a follow-up comment.

As other puzzled group members prodded and probed for information, Sequeira revealed nitty-gritty personal details: He kept his credit utilization low, had normal spending patterns, and no credit blemishes since applying for the card in January. He applied and was approved for two other non-Chase cards in subsequent months, and he'd applied for but not yet closed on a mortgage. But otherwise, he had no other recent lines of credit opened in the past two years.

The Sapphire Reserve was a top-of-wallet card for Sequeira, an Indian citizen and US green-card holder who moved to New York for college in 2003 and has been steadily building credit since. And unlike many of the people who have been shut down by Chase over the past year, he wasn't churning credit cards or gaming the system to maximize rewards.

[Read more: We recently dug into the rise of credit-card super users, the rewards arms race, and the myriad reasons banks can cancel your accounts.]

In short, he appeared to be a model customer, which is why he was so perplexed when Chase sent him letters saying his accounts would be shuttered in two months. Certain there must be a mistake or misunderstanding, he tried to appeal the decision.

But when he pressed, the representatives he spoke with at Chase declined to reinstate him. Even more vexing, beyond a vague line in the initial letter saying the "relationship creates possible reputational risk," the company refused to disclose the reasoning behind why his account was being closed in the first place.

When Business Insider reached out to Sequeira, he confirmed what he wrote in the Facebook group: He'd been unable to change the company's mind, nor could he get representatives to tell him what had happened.

"I even asked her, so you know the reason but won't share it with me. She said yes," he wrote to BI. "And it's within their rights. We just live in their world."

Sequeira was informed his cards would be shutdown in mid-August, right around the time he was scheduled to get married as well as close on a mortgage. He worried that the card closures - which included a Chase Marriott card that was one of his largest and longest-standing credit lines - would foul up the mortgage-lending process.

Moreover, he said Chase refused to refund any of the more than $500 he paid in annual fees on the cards.

A Chase spokeswoman declined to comment, noting that the bank doesn't speak publicly about individual clients.

Business Insider spoke with credit-card experts, including a card executive and industry consultants with compliance and regulatory expertise, about the circumstances of Sequeira's experience and possible explanations.

His shutdown case illustrates the broad power credit-card companies have to cut ties with customers, as well as how banks, amid steep fines and intense scrutiny from regulators, are keeping closer tabs on customers' reputations than ever before - and investing heavily in technology to facilitate their monitoring.

For Sequeira, the most likely possibility for his falling out with Chase and the bank's refusal to disclose why has to do with money laundering.

Efforts to combat money laundering have ramped up

Wait, what?

Sequeira isn't, as best we can tell, the kingpin of a criminal enterprise. He doesn't appear to have a criminal record at all.

But he wouldn't need to to run afoul of a bank's money laundering detectors, which have grown increasingly vast and sensitive in recent years.

The federal government mandates under the Bank Secrecy Act that financial institutions proactively police their own customers and alert authorities to potentially illegal behavior, including money laundering.

Customers who have a criminal history, are involved in litigation that paints them in a bad light, or are involved in an unsavory line of work, could be legally cut off by a bank - and the government encourages this proactive self-policing.

Regulators have gotten increasingly stringent over the years amid growing terrorism and drug violence concerns, as well as major failings by large banks.

For instance, JPMorgan was hit with a $2.6 billion fine as part of a deferred prosecution agreement in 2013 after the Bernie Madoff Ponzi scheme revealed significant deficiencies in the bank's anti-money laundering (AML) compliance program. HSBC paid $1.9 billion in 2012 and served a five-year probation over AML lapses that allowed Mexican drug cartels to launder hundreds of millions of dollars.

The onus isn't on the bank to fully investigate or determine guilt, just to report suspicious activity. And the number of suspicious activity reports banks have filed has steadily grown in recent years, from 714,000 in 2013 to nearly 960,000 in 2016, according to data from the Financial Crimes Enforcement Network, a division of the US Department of Treasury.

That uptick is attributable in part to mandatory electronic filing, which went into effect in early 2013, making it easier and less time-intensive to file a report. But it's also because financial institutions, stricken by the multi-billion dollar penalties levied against some big banks, have determined it's safer to overreport than to miss something and wind up in the hot seat with the feds.

"Regulators are very harsh when it comes to AML, so many banks have adopted conservative policies," one credit-card executive told Business Insider.

Under AML rules, banks have to adhere to "Know Your Customer" protocols to ensure that they're not being used as a conduit for corrupt or illicit activity. This means verifying a customer's identity and personal information, at the most basic level, but it also involves monitoring lists of sanctioned or otherwise criminally suspicious individuals.

Additionally, it requires monitoring the news for negative or "adverse media" about clients - litigation, criminal proceedings, or otherwise unsavory information that might indicate a customer requires a closer look.

"Banks pretty much universally do what are called 'negative news searches,'" Michael Brauneis, the head of the US financial-services practice at consulting firm Protiviti, told Business Insider. "That's really an area that regulators have put a lot of emphasis on."

But how can a bank really know its customers when it has tens of millions of them, as the largest banks do?

Some have built automated processes to run customer names through Google News or Lexis Nexis and feed results back that relate to litigation or criminal history and charges, according to Brauneis, who has two decades of experience in regulation risk and compliance.

Regulation technology companies like ComplyAdvantage, Ayasdi, and TransparINT have popped up to fulfill this service, too, offering proprietary databases and screening tools that incorporate artificial intelligence and machine-learning to better tailor and streamline the flagging process.

Did a company settlement set off AML monitors?

So why might Sequeira have gotten flagged? Google News and Nexis searches show that in 2017 Sequeira's employer, eletronic-medical-records company eClinicalWorks, agreed to pay $155 million to the federal government to settle claims that it had misrepresented its software and used shortcuts to pass come certifications. The company denied any wrongdoing, saying it settled to avoid expensive, protracted litigation.

A handful of employees, including senior executives, also agreed to pay settlements to avoid potential future litigation and resolve personal liability while still denying wrongdoing. Sequeira, a product manager, was among them. (No eClinicalWorks employees were convicted or any crimes or served any jail time.)

He was shocked when Business Insider informed him the settlement could be the source of his Chase fiasco. He said he had the support of his firm, and that he only agreed to pay the government $15,000 to ward off any possibility of future litigation with the feds and to put the matter to bed.

"We didn't do anything wrong. The company didn't accept fault; we didn't accept fault," Sequeira told BI.

But while the matter went away in the eyes of the government, a digital trail lingered.

Credit card experts told BI that, depending on the institution, the eClinicalWorks settlement could have tripped up AML negative news monitors.

This data point alone wouldn't necessarily guarantee account termination, but JPMorgan, the largest bank in the US, likely has among the most advanced AML procedures. Following the Madoff scandal and the heavy scrutiny from regulators that ensued, the bank invested heavily in beefing up its AML systems, including the installation of automated systems.

The firm has gained notoriety for being aggressive in cutting ties with customers over reputational concerns to avoid any compliance headaches, and not just customers engaged in potentially criminal activity. The bank faced backlash in 2014 for cancelling accounts held by porn stars - Stephanie Clifford, also known as Stormy Daniels, was among them - as well as those held by companies involved in the sex industry.

It also temporarily severed its payments relationship with condom-maker Lovability that same year due to "reputational risk" before reversing course.

The company's aggressive, conservative approach to compliance with regulators and its breadth of resources - JPMorgan has a $10.8 billion budget just for technology - might explain why Sequeira had his accounts flagged and terminated at JPMorgan but not other financial institutions he's connected to, including two other large credit card issuers he has open accounts with.

"Different banks have different risk tolerances for this type of thing," the credit card executive said.

"My goal is never to bank with Chase again."

Still, some aspects of Sequeira's situation remain murky.

Why was he approved for the card in the first place earlier this year, and then flagged for termination six months later, if it was based on information that's been available since mid-2017?

Bryan and Amanda SequeiraBryan SequeiraBryan Sequeira and his wife Amanda, on their wedding day in August.

Additionally, Sequeira wasn't the only individual named in eClinicalWorks settlement who has Chase credit cards, yet colleagues told him they haven't had the same experiences with Chase. Was there some additional factor that came into play in his case?

It's also difficult to explain why Chase notified him his accounts would be shutdown months before they actually were. Typically, banks shut off credit to risky borrowers and then subsequently notify them, rather than give them a window to rack up more charges before shutting them down, according to Brauneis.

Chase declined to comment on any of the above.

Though some mystery remains, Sequeira's relationship with the bank has concluded. His accounts were officially shut down August 16. Chase ultimately agreed to prorate the annual fees he'd paid on the cards and issued him a refund.

For Sequeira, life goes on without Chase. He got married August 16 - the same day his accounts were terminated -and, despite the potential credit scare, he's in the final stages of closing on the mortgage.

He says he's moved on but won't forget the episode.

"I would've preferred not to get approved at all then go through all of this," Sequeira said. "Our goal is never to bank with Chase again."

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