Lender liability can come in many forms and can park on a lender’s doorstep at any time. Following is a partial list of instances where lender liability may exist:

• • Unauthorized release of confidential information
• • Failure to provide promised financing
• • Faulty documentation or procedures
• • Faulty business advice
• • Inadequate disclosure

Business development and lending officers lead a life that requires sophistication and discipline. They’re pushed by management to build loan totals, cross sell various non-loan bank services, and stay close to the customer to build commitment to the bank / customer relationship. This may mean attending events with a customer, inviting them over to watch a ball game or any of a number of things to develop a bond.

When things are going well on both sides of the relationship, life is good. But, when things get off track, memories get short and negotiations often fall apart. That’s when attorneys get involved and lawsuits are filed. How do you avoid it? Sometimes, it can’t be avoided, but there are things that can be done to reduce the possibility of it happening.

First of all, a clear guideline and discipline must be ingrained in the culture of the lending organization. Lenders must understand what is appropriate and what is not, even if it means role-playing in a training session. Customers come from all levels of business. They cannot be expected to take the lead.

Key precautionary actions that can be taken:

• Extra care should be taken to avoid over-promising in sales calls
• Agreements should be in writing
• Written agreements should state there are no agreements other than those included in the written agreement
• If there is a deviation from the agreement, a written modification should be executed
• Business and personal relationships must be differentiated
• If lender has a strong personal relationship with a customer, it would be a good idea to move the customer to a different account officer
• Consulting with a customer is good from the perspective that the lender generally has a broad view of the customer’s industry and financing alternatives
• Consultations should be generic and not disclose other clients’ trade information
• Referrals and advice should always give the customer multiple choices on how they operate their company or who they choose to do business with

What if you find yourself toe-to-toe in a lender liability lawsuit?

• • Make sure you have an attorney that understands lender liability.
• Discovery should be thorough. Seemingly small details can make a big difference.

A good expert can sift through details and identify and present points that support your side of the case.