Magazine article American Banker

Wachovia Case Has Ga. Banks Examining Power of Attorney

Magazine article American Banker

Wachovia Case Has Ga. Banks Examining Power of Attorney

Article excerpt

Georgia bankers say they may think twice about accepting power-of-attorney accounts, unless the state Supreme Court reverses a recent ruling against Wachovia Bank of Georgia.

The Georgia Bankers Association has asked the Supreme Court to hear the case, in which the unit of Winston-Salem, N.C.-based Wachovia Corp. was found negligent in allowing a customer to cash in a CD without consent from the sister who had power of attorney over the account.

The trade group, which announced last week that it had filed a friend-of-the-court brief, says it fears that if the ruling stands, banks will be compelled to research the backgrounds -- and mental histories -- of customers who use power of attorney.

The "decision, in essence, forces banks to double-check every depositor before adhering to a depositor's demand," the brief says. "This is an unrealistic and absurd result."

The dispute began in 1995, when Wachovia gave Bernard S. Bailey Jr. $66,722 from a certificate of deposit that his sister, Frances B. Reynolds, purchased for him under power of attorney. To keep the money safe, Mr. Bailey gave it to a friend who later vanished, court documents say.

Ms. Reynolds sued the bank in 1996, stating that, because it knew her brother was mentally unfit to manage the account, it was negligent in giving him the money. The bank argued that it was unaware of Mr. Bailey's state of mind, and under the power-of-attorney agreement was required to give him the money.

A lower court sided with Ms. Reynolds and ordered $65.6 billion-asset Wachovia to repay Ms. Reynolds and Mr. Bailey, plus interest. An appeals court affirmed that ruling in April.

Wachovia is less concerned about the money than it is about the impact the ruling might have on how the bank manages power-of-attorney accounts, said Michael Ray, its associate general counsel.

"This puts the bank in the position of having to get into the customer's business and know whether the customer is able to handle their own money upon first dealing," he said. …

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