Lender Liability – When is it No Longer an "Arm's Length" Transaction?
By Kluger Kaplan September 10, 2012
By Philippe Lieberman
As banks today struggle to stay afloat, many are increasing their offerings to customers. The tension arises when the duty owed to the customer by one department of the bank may be different than that owed by another department of the same bank. For example, some services, like financial advisory services, historically create fiduciary obligations, while other traditional bank services, like lending, may not. Bank customers may expect the bank as a whole to look out for their best interests in all transactions with the bank because one relationship may create a fiduciary duty, while the bank itself may view the relationship differently.
So if the bank is wearing multiple hats, does it owe a fiduciary duty? Does the fiduciary duty extend to the institution as a whole? Does it owe a duty to look out for the customer’s best interests in all transactions? Where is the line drawn? I encourage my clients to consider this issue when they transact business with one banking institution across multiple departments. It should be expected that long-term bank customers who receive extensive financial services from the bank would expect the bank to exercise a duty of loyalty in good faith across all the banking departments, but banks may not view their relationship with their customers the same way.