It’s all about numbers – whether you’re talking your age, weight, salary, and just as important, your social security number.
In fact, try getting a bank account without a social security number or Individual Taxpayer Identification Number (ITIN). Good luck with that. For many years, banks and credit unions were interested in those digits primarily for the purposes of reporting financial information to the Internal Revenue Service.
Then came 9/11 and the Patriot Act. "Under regulations of the Patriot Act, banks are required to get an ITIN or social security number, to know your date of birth. It’s all part of banks knowing their customers," says Christopher Cole, executive vice president and senior regulatory counsel for The Independent Community Bankers of America.
If by chance a bank or credit union doesn’t ask for a social security number or ITIN when you open an account, you can expect to be asked for it after you open the account. "You will need a social security or ITIN for any transaction," explains Cole.
Often a portion of a customer’s social security number is used after opening an account as a method of authentication, in combination with other identifying questions, points out John Cooke, vice president and online marketing manager for BankFive.
A number is one of the best ways to identify a person. "You can’t rely solely on names because there are a lot of similar names," says Cole. Banks can ill afford to make mistakes. Cole, who was a bank attorney back in the 80s and 90s recalls banks in court battles because an account holder’s name was not clear or the bank had the wrong social security number. "Even in the case of a garnishment, maybe the information comes to the bank with just a first initial and a last name, without a social security number it’s almost impossible to figure out who is the right person."
For sure, banks are highly regulated. "One of those regulations has to do with reporting the flow of money. If someone deposits $20,000 into your account and that does not match up with your pay stubs, then that money is taxed differently and the IRS wants to make sure the correct taxes have been paid on that money," says Byron Galindo, a State Farm agent also versed in banking. "That $20,000 may be from another job, so then the IRS examines if the business that gave you that money is in compliance in reporting its money," he adds.
Simply put, "Social security numbers give the government the ability to track money moving from one person to another. And when money is not able to be accounted for then bam! There is most likely some illegal activity behind it. A social number means you are someone who is contributing taxes and are playing by the rules," says Galindo.
Every time money switches hands, taxes are paid, so if that money switches hands and the IRS can’t see it moving to another social security number, then they can assume the proper taxes were not paid, says Galindo.
A social security or ITIN is also likely to be required when you designate someone a beneficiary of your account. Beneficiary policies vary, says Cole. However, if the person who inherits the money will receive it in the form of a check or wire transfer, that’s a transaction that will require a number.
Given the importance of your "number", keep in mind that ID theft isn’t something that happens to someone else. Fortunately, the Social Security Administration has gotten better at allowing institutions to verify social security numbers, says Nessa Feddis, senior federal counsel, consumer protection with the American Bankers Association. The bottom line – protect your number with great care.