Recently in my research on financial planning, I’ve noticed more complaints about banks closing personal accounts with no notice. While some of this could be attributed to a person abusing the relationship (by consistently bouncing checks, for instance), in most complaints the account owners stated they had done nothing wrong. How can a bank just close your account? And what should you do if it happens?
It’s a two-way street
While financial institutions love to present themselves as your partner, there’s a reason many banks refer to their brick-and- mortar locations as stores. You’re a customer, they provide a service. If you don’t live up to your end of the deal (whether this is real or not), a bank can close your account. They can do this without your permission and often without notice.
Why a bank may close your account
As mentioned above, repeatedly bouncing checks can get a customer’s account bounced as well. There’s a fine line here, since banks love to make money from the fee you’ll pay for bounced checks. However, when it becomes more than an occasional occurrence and the bank is on the line for hundreds or thousands of dollars, that $35 fee no longer suffices.
Additionally, if the bank thinks you’re conducting illegal activity, either by making large cash deposits or suddenly engaging in suspicious wire transactions, they may close your account. Using a personal checking account for your business may be flagged. And if you opened an account and have not deposited money into the account for a period of 60 days, many banks will close your account.
Impact on you
Imagine you’re shopping for your friend’s birthday when your credit card is rejected. You try your debit card – it’s declined too. You’re thinking this must be a mistake, but after calling the bank you discover your funds are frozen. You still have a balance, but there’s no way to access that money.
Since the account was closed several days ago, you discover that your monthly car payment was never made and more bills are coming due soon. Suddenly you’re in a state of panic about how to access your cash and how you will pay your upcoming bills.
Call the bank
This is not the time for emails. Call your bank to demand an explanation. Remember to remain calm, but ask them why your account was closed and what you can do to resolve the situation. It’s not a bad idea to have your most recent bank statement in case there’s any question about your account balance during the call. Unfortunately, banks are notorious for not telling customers what provoked the account closure, so don’t be too surprised if they refuse to give you a reason. At the very least, ask about their timeline for any investigation into the closed account and also whether they are amenable to reopening the account.
If you have a positive account balance, ask the bank representative when you will receive a check for that balance. If they are investigating fraud or have closed your account due to a suspiciously large deposit, you may not have access to all of your account holdings. However, you should discuss what’s under investigation and inquire about the available balance that they can forward to you immediately.
Evaluate your options
Your response may differ depending on what you hear from the bank. If you have a negative balance due to bouncing checks and they will reopen your account after you have reimbursed them, you may choose to quickly bring the account back into good standing while you investigate other options. On the other hand, if they talk about fraud and a weeks-long investigation to determine whether there’s any chance of the account being reopened, you may need to quickly pivot to an alternative arrangement.
Open/utilize another account
If you have another account available, check the balance in that account to see if there’s enough money to cover your living expenses while you’re fighting against the closed account. Don’t just consider traditional bank accounts. If you have an online brokerage, many offer online banking with the ability to pay bills and access money through ATMs.
If you don’t have another account, visit a local bank or credit union to open one. You may want to check your ChexSystems information to see if the closed account has shown up as a negative on your report. If it has, you still may be able to work with a local bank or credit union to open an account.
Move your direct deposit
Contact your HR Department to move your direct deposit from the closed account to another account. If you are having difficulty opening another account, ask HR if they can pay you by check until the situation is resolved.
Stop automatic transfers
Make a list of any bills automatically paid from your account, and check to make sure you aren’t behind on any payments. Either begin paying these bills manually, or shift the auto-payments to your new account or to a credit card until you have a new account available.
Appeal the account closure
Sometimes a customer’s actions result in the account rightly being closed. However, banks seem to be using abrupt account closure as a first-step reaction to potential fraud more than in the past. In fact, while Suspicious Activity Reports that banks submit to law enforcement have almost doubled since 2014, only 4% have led to any police follow-up. If you get caught up in this, you can file an appeal with the regulator of your bank. The Office of the Comptroller of the Currency provides a website where you can search for your bank’s regulator.
Make social media noise
I’ve heard about more and more instances of banks closing accounts abruptly through articles in the media. Most of these people either reached out to the reporters or were active on social media and posted about their situations. Banks, like most organizations, hate negative press. If you’ve done nothing wrong, make noise on social media.
Limit the potential for account closure
Given that banks are using abrupt closings more often, you may wonder how you keep your account safe.
Long-term relationships. If you’ve just opened an account and begin depositing random large checks or piles of cash, most banks are going to be suspicious. However, if you’ve been with a bank for years, an occasional out of the ordinary deposit will most likely not raise eyebrows.
Contact them if you have any concerns. When we replaced an engine on my son’s car, I decided to charge the expense to take advantage of my credit card rewards. However, I called the credit card company before we showed up at the repair shop to let them know a large charge was about to be made. If you have a bank account and will be receiving or making irregular payments, let them know.
Stop the overdraft cycle. If you constantly bounce checks or have negative account balances, it’s time to start managing your money flow better. See where you can cut expenses so that you can have a buffer in your account. Sign up for text alerts that will keep you abreast of expenses hitting your account.
Open a second account. As I mentioned above, you may already have a second checking account that you don’t use through your online brokerage. We have maintained a small balance in a local credit union that we used when we purchased our last car. Having a local office gives us the opportunity to deposit cash if we need to, but also allows us to talk to someone in person if we have a check that cannot be mobile-deposited or another situation that cannot easily be handled online.
Suddenly discovering that your bank account has been closed is a stressful and frustrating experience. But following the steps above can help lessen the impact and protect your financial well-being.
Photo by Andrea Piacquadio