In Michigan, a retired Black woman was denied services by three white bank employees in an alleged case of racism for which she is now suing.
The Bank’s Racism
The story was first reported by CNN in an article titled “A Black retiree won money at a casino and is suing bank after she says she was turned away while trying to deposit a check” published on September 10th, 2022.
To summarize what happened, during an April church outing, retired Lizzie Pugh won over $12,000 on a slot machine at Soaring Eagle Casino & Resort in Mt. Pleasant, Michigan.
Mrs. Pugh took her winnings, which had been issued in the form of a check, to Fifth Third Bank in Livonia, Michigan with the intention of opening a savings account and depositing her winnings. She alleges that three white bank employees claimed the check was “fraudulent” and denied her service due to racism.
Mrs. Pugh’s attorney, Deborah Gordon, said this in a statement.
“What happened to Ms. Pugh is yet another example of the hurdles and indignities facing Black Americans as they try to get through the day. It is not only young Black men who are profiled. Fortunately, Michigan has a strong statute prohibiting discrimination in ‘public accommodations,’ including banks.”
The bank, of course, denies the entire thing. CNN, of course, paints a picture of a racism and sadly, the story was picked up by the Washington Post, Detroit Press, Yahoo! news, USA Today and many others.
Here’s The Problem, This Was Not Racism
This might appear to be a statement that could not be known at this point and the contrary appears far more evident, however, there is proof and here it is.
This is the check Mrs. Pugh attempted to cash and it proves this was not racism and the check was indeed, “fraudulent” as stated by the bank employees which is noted by Pugh herself in her court filings.
The bank filed a response denying all allegations and further solidified that the banks employees had indeed come to this conclusion and disputed that any events occurred that would warrant damages or other relief.
Whether or not these bank employees are or are not racists cannot be discerned by any of the available information, however, it is clearly evident that the behavior of these employees was not an act of racism.
How Is This Evident?
The image of the casino check shows a check printed on check paper, more specifically printed on VersaChex™, VersaCheck, or Zapco© paper. Based on the pattern on the check, it appears to be VersaChex™ classic blue business check paper which is one of the most frequently used products for fraudulent checks.
This check paper fits into a standard inkjet or laser printer and can be printed using a variety of software applications ranging from Quickbooks® to SAP® with standard toner.
Therein lies the problem. The standard toner or ink used to print this check is not MICR ink. MICR ink is magnetic and allows bank system to scan the check automatically or processing.
It’s also required by federal law.
Also known as REGULATION CC, banking regulations under 12 USC 229 require that all checks must have the MICR line printed with MICR ink to be considered “cash-like” payment instruments.
This is also required to meet “next-day” availability. MICR ink is defined under 12 USC § 229.2 (vv) and 12 USC § 229.2 (u)(4) defines checks without MICR lines printed in MICR ink as “non-cash” items which is a negotiable instrument and cannot be certified until the funds clear the issuers account.
Mrs. Pugh was attempting to open an account, cash the check, and deposit the funds into the newly created account and this simply is not possible with a non-cash item. Federal law supports the banks right to refuse the instrument completely, charge additional fees for processing the instrument manually (many automated sorters/scanner will reject non-MICR checks), or consider the checks fraudulent because they are often exactly that.
The bank is not obligated to cash any check at all from a non-account holder, and have the right to refuse a non-MICR check. The bank simply could not cash the check due to the risk, which would have also triggered a CTR reporting requirement (cash transaction report exceeding $10,000), and lack of KYC/CDD. Without cashing the check, or supplying another form of cash-like deposit, or cash, the account cannot be opened in the first place to deposit the check, thus, it could not be deposited either.
Had Pugh possessed an open account with the bank with adequate banking history in both duration and adherence to bank policy, she most likely would have been allowed to at least deposit the instrument, but funds would not have been available for several days and possibly up to a week.
However, even this is not a guarantee. Here’s another example of a casino check refused by the bank of an existing account holder, and after it was deposited.
This check was for only $1,965.00 and the recipient, Daniel Coudriet, assumed the check bounced. However, as you can see, it was refused by internal compliance and not for insufficient funds. This was printed on either DocuGaurd™ or EX Checks™ paper, most likely EZ Checks based on the hologram.
The same problem is present, no MICR-ink and in this case, it was after-the-fact, not in person. In this case, it was likely a new account, almost all banks will process a check like this if the account has a good standing history, albeit often with a significant hold of up to 10 days because the sorter system will reject the check which creates a manual process to approve the check that can accrue rejection fees.
Companies like the casino that issued the check, use regular ink because it saves them a tremendous amount of money well worth the risk of an occasion fee for a non-compliant check, however, it’s almost always people like Mrs. Pugh who end up suffering the consequences.
It Gets Worse
In some cases, such as Mrs. Pugh’s, the bank is also obligated to report the transaction to the Financial Crimes Enforcement Network (FinCEN) because the transactions was both a), suspicious, and b) over $5,000. This is federal law under the Bank Secrecy Act of 1970.
Unfortunately, not only will Mrs. Pugh almost immediately lose her lawsuit, the federal government may further review the transaction for potential fraud or money laundering where Pugh could be considered a suspect because the bank was obligated to file a SAR.
Moreover, there’s nothing Pugh or her attorney can do about that either, the bank is granted immunity¹ from civil lawsuit resulting from a SAR. This is also federal law.
So What Was Suspicious?
Bank employees work in a heavily regulated industry and penalties for violations of these regulations are not only imposed on banks as legal entities, but also on bank employees directly.
Penalties range from small fines to lengthy prison terms, which means as ridiculous as it may sound, a bank employee can go to prison for cashing a check under various circumstances.
Bank employees are excessively trained to identify “red flags” which indicate suspicious activity. This training is required prior to performing financial transactions on behalf of a bank and continues annually and periodically. This is required by federal law.
The bank employees found themselves involved in a transaction that had red flags written all over it, none of which have anything to do with skin color, and everything to do with anti-money laundering (AML) procedures.
Red flags
- Check was presented for cash — Cash is bad in the banking industry and is the most heavily regulated payment instrument.
- Check presented to cash exceeds $10,000 — This is a legal threshold that triggers a federal CTR report.
- Amount of deposit exceeds $10,000 — This is a legal threshold that banks must report to the IRS.
- Check presented to cash exceeds $5,000 — This exceed suspicious activity thresholds which can trigger a federal SAR report.
- Check was printed on cheap check paper — One of the most used tools in check fraud, banks see these many times per week.
- Check had no security features
- Low check number — The check number is 1905 which is unusually low for this type of organization
- Check had no MICR encoding — This is a legal requirement
- Check was presented by a non-account holder — While banks can cash checks for non-account holders, they seldom do unless the issuer is an account holder.
- Check was not a pre-printed check — The entire check was printed on a laser or inkjet printer.
- The check was issued by a casino — Casinos are the most targeted establishments for money laundering and other elicit activity.
- The check was an unusually high amount — Let’s face it, few people even leave casinos with any winnings at all (approximately 11%), much less anything remotely significant.
Just one or two of these red flags would have justified the banks actions. There are 12 listed here alone and there were possibly more.
Moreover, every step a bank employee takes during the course of a transaction is meticulously documented procedure. None of the three employees just came to this conclusion for no reason, they were following written procedures that document exactly what to do step by step.
These are called written controls and these are also federal law.
Why Didn’t They Explain?
Why didn’t they just explain all of this to Mrs. Pugh? They can’t. Federal law prohibits disclosing a SAR (which was surely the case after 12+ red flags) and violations can result in prison time.
Why couldn’t they have just called the casino? It wouldn’t have mattered as far as denying services. Even if the casino verified the check, they would not have cashed the check so it was a moot point.
This was not racism, this was pursuant to federal regulation.
In fact, the CNN article claims she was able to cash the check at another bank, however, there is no possible chance of that being accurate unless there was a previous relationship with the bank or she cashed it at the casinos bank directly, because there is no bank in the United States that would have cashed that check for a brand new customer outside of negligence or the foregoing.
She’s very lucky she even got he check back, the bank had every right to confiscate it and had she called the police like she had threatened, they would have taken her to jail for the same reason the bank could have kept the check, probable cause.
This Case Will Be Tossed
The purpose of the in-depth explanation here is so that the circumstances can be fully understood when the case is dismissed, which is likely to happen within a week or two, if not sooner, and will surely ignite another round of complaints and accusations of racism where no racism exists.
This is going to appear as if Mrs. Pugh made baseless accusations, which in itself, is rather unfair considering the visibility of this case is the fault of CNN, other news outlets, and mainly, her attorney.
Lizzie Pugh did nothing to deserve this and one can only imagine how terrible she must have felt being subjected to this kind of scrutiny, but the truth of the matter is that this would have happened to any individual in the same circumstance, regardless of gender and regardless of race.
People need to do their due diligence and consider all of the facts and circumstances of situations before jumping to any conclusion, especially one of racism and especially attorneys filing lawsuits.
This is likely to be considered a frivolous lawsuit by a federal judge because it is filed with no lawful premise and any competent attorney knows this.
Legitimate allegations of racial discrimination are serious and should be taken seriously, not only by the judicial system, but also by those making the accusations because if they continue to become common insults or lawsuits without lawful premise, like the Pugh case, people will stop taking them seriously.
That’s not good for anyone other than racists.
References:
- Safe Harbor (immunity)
31 U.S.C. § 5318(g)(3)(A);
31 C.F.R. § 1020.320(f) - Image 1 credit: Yahoo.com
- Image 2 credit: CNN
- Image 3 credit: CNN
- Image 4 credit: AskGambler.com
- CNN Article
- 12 U.S.C. Sec. 229
- Bank Secrecy Act of 1970
- Financial Crimes Enforcement Network (FinCEN)
- Pugh Vs. Fifth Third Bank, National Association et al