Crypto is notorious for customers getting "rugged"—slang for getting the rug pulled from under them by a service or project that disappears abruptly. But crypto is hardly the only place this is happening. In recent years, there has been a dramatic increase in the number of clients getting rugged by their banks.
In these cases, the rug-pull isn't as bad since the banks eventually return their money. But the short-term impact is just as bad since customers lose access to their bank account and credit cards, sometimes for weeks, leaving them scrambling to pay bills or just get through the day. As the New York Times reported earlier this week, there is no precise data on how often banks are doing this, but there has been a 50% increase in the last two years of "suspicious activity reports" (SARs), which often lead to them ghosting customers without warning.
The Times appeared to have little trouble finding over 500 real-life examples of customers getting abruptly dropped by their banks, and cited plenty of instances where the decision was not just sudden but totally unjustified. This included businesses, students, and everyday people who set off a trip-wire and could do nothing but wait for days or weeks until the bank returned their money. The reasons the cutoffs are are often a surprise, but the consequences are not:
"Individuals can’t pay their bills on time...When the institutions close their credit cards, their credit scores can suffer. Upon cancellation, small businesses often struggle to make payroll—and must explain to vendors and partners that they don’t have a bank account for the time being," the Times reports.
The justifications for cutting off accounts in this way is rational enough. In the bloodless language of bankers, it is a matter of "de-risking"—if a customer account flagged by a SARs report could lead to fines or regulatory investigations, it makes sense to cut it loose, the human toll notwithstanding. As one person who worked on the process told the Times, “There is no humanization to any of this, and it’s all just numbers on a screen. It’s not ‘No, that is a single mom running a babysitting business.’ It’s ‘Hey, you’ve checked these boxes for a red flag—you’re out.’”
It makes sense from a strategic perspective for the banks to operate this way, but it's also a terrible way to treat people—especially as it would cost little for them to introduce a measure or two to help innocent people caught up in the SARS dragnet.
This isn't to say that the crypto industry is any better when it comes to respecting its customers—the customer service is also lousy and there are dozens of novel ways you can get robbed outright. But it's easy to see why a core message of crypto—that you can give yourself total control over your own money—has become so appealing to so many.
Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts
