Having your bank account closed can be a bad surprise that causes long-lasting financial headaches.
Imagine you're about to pay for groceries. You swipe your debit card, only to discover that the charge was declined by your bank. You wonder why: you've never overdrawn your checking account, and you know there's plenty of money to cover the cost of the transaction. Only later do you learn that the bank has closed your account.
Banks can close your account without your permission, and without giving you advance warning. Here's what you need to know in case your bank closes your account.
Seven reasons why banks close accounts
Bank account closures can happen because of account inactivity, fees, suspected fraud, or other reasons. Here are seven common reasons why banks close accounts:
1. The account is inactive for too long
If you haven't used your checking account in several years, the bank may determine the account is abandoned and close the account.
2. The account has a negative balance
Many bank accounts have minimum balance requirements. If you fail to keep the lowest required amount of dollars in the bank, the bank could close your account.
3. There is suspected fraud on your account
If fraudulent activity is detected on your account -- whether you're suspected of committing fraud, or a victim of fraud and identity theft -- the bank could close your account. Contact your bank immediately if you see unauthorized charges on your account or other suspicious activity.
4. You have an excess of overdraft fees or account fees
Many banks do not charge overdraft fees anymore. But if your account is racking up bounced checks or other checking account service fees, and you don't have enough money in the account to cover those fees, the bank might respond by closing your account.
5. You violate a bank policy
If you run afoul of the fine print of your bank account terms and conditions, your bank could close your account. Bank policy violations could include using a consumer checking account for business purposes, or trying to exceed daily ATM withdrawal limits. If your bank account activity looks suspicious, this could lead to a bank account closure.
6. Too many withdrawals from a savings account
Regulation D is a Federal Reserve rule for bank savings accounts which limits customers to six "convenient transactions" (such as online transfers or overdraft protection) from your savings account per month.
Since the pandemic, banks have not been required to enforce Regulation D, so your bank might not be strict about this. But be careful: if your bank is enforcing Regulation D and you make more than six "convenient" withdrawals in a month, your savings account could be closed.
7. You have a criminal conviction
If you have previously gotten in trouble with the law, it's important to disclose this information when opening a bank account -- especially if your criminal record is related to financial crimes like wire fraud or money laundering.
Banks can close accounts of people who are convicted of crimes, or who did not disclose previous criminal convictions.
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Does the bank have to notify you when it closes your account?
No. This might surprise you, but banks can close an account for any reason and are not required to provide notice.
Let's say you have several bank accounts and rarely use one of them. It's possible you won't know the bank account is closed until you try to get money out.
What happens to your money if a bank closes your account?
If you have money in the account at the time it's closed, the bank is required to return it to you minus any outstanding fees. If an automatic deposit goes into that account after it's closed, those funds must also be returned. Typically, the bank will send you a check.
If your account has been inactive for years and the bank doesn't know where to find you, the money may have been sent to the unclaimed property office in your state.
In this case, to get your money back, you'll need to contact the appropriate office in your state (such as the State Treasurer) and provide documentation to verify your identity.
How can a bank account closing impact your life?
Having a bank account involuntarily closed can be a hassle for years to come. Here's how:
When a bank closes an account because of an unpaid balance or suspected fraud, it's reported to a company called ChexSystems. Banks routinely request a report from ChexSystems before allowing a new customer to open an account. So if you have bad banking history in your ChexSystems report, this can make it difficult for you to open a new account with another bank.
Another negative effect of bank account closings happens if your account is closed due to an unpaid bank balance. That debt could be forwarded to a collection agency. If your unpaid bank fees go to collections, just like other unpaid debts on your credit history, that action is reported to the credit bureaus and can affect your credit score for up to seven years.
How to protect your reputation as a bank customer
Here are two steps you can take:
- Get a free copy of your ChexSystems report once a year. Look it over, and if you find any mistakes, dispute them with ChexSystems.
- As soon as you pay off any outstanding balances with your old bank, you can request to have the record removed from your ChexSystems report.
And even if you made a mistake, had a bank close your account for valid reasons, and cannot erase the bad mark on your ChexSystems report, you still have options. Some banks do not rely on ChexSystems to screen new customers, or offer special "second-chance banking" accounts for customers who are rebuilding their ChexSystems history.
What to do if you want to stay with the same bank that closed your account
Even if you're annoyed with your bank for closing your account, you still might want to keep banking there. After all, changing banks can be time-consuming, and your current bank might have other great accounts and products, like rewards credit cards, that you want to keep using.
If you decide that you want to stay with your bank after the bank involuntarily closed your account, here are three steps you can take:
- Find out why the account was closed. Call your bank and ask it to explain why it chose to close the account.
- Pay the balance. If the reason the account was closed was due to an unpaid balance, find out how much it is and pay it off.
- Ask to reopen the account. Once your account balance is settled, the bank may be willing to reopen it. If it's unable to do that, you can explore opening a new account with the same bank. If the bank won't allow you to open a new account, it's time to look for a new financial institution.
If you believe your bank account was wrongfully closed, contact the Office of the Comptroller's (OCC) Customer Assistance Group. You can also file a complaint with the Consumer Financial Protection Bureau (CFPB).
Having your bank account closed against your will is a stressful situation, and hopefully this will never happen to you. But mistakes and misunderstandings do happen.
Keep in mind that even if a bank closes your account, it's not the end of the world. You still have options to try to fix the problem, open a new bank account, or rebuild your ChexSystems report to get back in good standing as a bank customer.
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