Asking Yourself ‘Why my Bank Account is Under Investigation?’ One of These Could be the Reason.
It can be scary when your bank account is under investigation. You’re wondering if you could be out hundred—or even thousands—of dollars. You’ve heard horror stories about cardholders who’ve literally seen their lives ruined by financial crime.
So…what’s going on?
If your bank account is under investigation, it’s likely because of five possible scenarios. If you’re a cardholder, it could be that they believe someone charged an unauthorized transaction to your account. If you’re a merchant, it might be because of chargebacks. In either case, the investigation might be tied to debts or suspected illicit activity.
In this post, we’ll explore the top 5 reasons why banks launch investigations, and what might lead your bank to take this action. We’ll also explore the potential consequences of each, and what you can do to move forward.
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Do Banks Have the Right to Investigate My Account?
Yes, banks can investigate your account and examine your personal information. In fact, banks do what they do because of the law.
Banks are required to abide by a complex body of federal regulations. There are laws in place to try and prevent fraud whenever possible, and to ensure that consumers are protected and that both money and credit are able to circulate freely without issue.
Banks can face serious consequences for failing to abide by these rules. They can be fined, and bank officers can even face prosecution if they don’t conduct due diligence. At the end of the day, these banks need to protect themselves. That means placing your bank account under investigation if they have any reason to suspect fraud.
Banks have some leeway in choosing whether to freeze or close cardholders’ accounts. The reasons they might do this were outlined in your customer agreement. In the next section, we’ll touch on some of the most common reasons they might do this.
Top 5 Most-Common Reasons for Bank Investigations
So, now you’re probably wondering “why my bank account is under investigation.” You’re looking for a specific reason to explain this irritating (and potentially very dangerous) situation.
Let’s look at some of the most common reasons why your financial institution might put your bank account under investigation. These can apply to individual consumers, or to businesses. We’ll also give you some information about what steps to take next if your account is frozen or closed as a result of one of these issues:
For Your Safety
The Problem:
If your bank notices suspicious purchases, they may decide to take a closer look. This could be triggered by purchases that don’t fit your usual pattern, were initiated from a place in which you don’t live, or which were shipped to an address that’s not your home.
If this is the reason why they put your bank account under investigation, they likely froze your account. You definitely want that freeze to be in place, as it will prevent further criminal activity. If it was put in place by mistake, though, the misunderstanding can usually be resolved with a simple phone call.
What to do:
If fraud actually took place on your account, you want to let the bank proceed with their investigation. The good news is that, under the FDIC, your account will be insured for up to $100,000 in the US, less your share of liability. If you report debit card fraud within 60 days, you’ll be liable for no more than $500. In cases of credit card fraud, your liability is capped at just $50.
If, however, the freeze was placed in error, you want to reach out to the bank immediately. A phone call with a bank official should be sufficient to clear up any confusion, end the inquiry, and get your account back.
Debt
The Problem:
If you owe money to a creditor, they may have the right to freeze some—or all—of the money in your account. This can apply to mortgage debt, car loans, student loans, and other. It can also apply to debts stipulated by the courts, including legal judgements, child support, and back taxes.
You’re not safe, if you’re not personally the one who owes the debt. On a joint account, you might end up getting punished because of the debts owed by the person with whom you have the account.
What to do:
If you owe the debt in question, there isn’t much recourse available to you aside from either paying or renegotiating the debt. We suggest you try to start by finding out who the creditor is (your bank should be able to give you this information). We also recommend seeking legal advice, and possibly credit counseling if you can’t pay the debt right away.
You're Considered too Risky
The Problem:
People or businesses who do business in so-called “high-risk” verticals may not be able to secure standard bank accounts. Obvious examples include industries that have only partial legal status depending on jurisdiction like gaming, guns and ammunition, adult entertainment, and cannabis. However, it can also apply to telemarketing, payday lending, and many online businesses.
This type of risk is assessed based on the susceptibility to chargebacks, based on the product or service you offer. Product categories that historically see higher chargeback rates can be considered risky.
What to do:
You can still do business, even if you operate in a high-risk vertical. However, you probably won’t be able to work with a standard bank.
You’ll need the services of an acquiring bank that specializes in providing accounts to high-risk merchants. The account will probably be more expensive, and come with more restrictions: after all, the bank needs to offset the cost of the increased chargeback risk. However, you can still do business just like before.
You Have too Many Chargebacks
The Problem:
Going off that last point, a high chargeback rate can lead your bank to put your bank account under investigation. Remember: by offering to process transactions on your behalf, the bank is basically vouching for you to the card networks (Visa, Mastercard, etc.) and to other financial institutions. If you are unable to cover your liabilities because of chargebacks, the bank could be on the hook for them.
Your chargeback rate—the rate at which you receive chargebacks, as a portion of overall transactions you conduct—is an important indicator here. Each card network has their own predetermined chargeback threshold. If you breach this threshold, or even come close in some cases, the bank might freeze or close your account.
What to do:
Getting chargebacks under control is a challenge for a lot of merchants. Your first step should be identifying chargebacks by their source (merchant error, criminal fraud, or friendly fraud). You can then deploy the right strategy to address the issue and prevent disputes.
Seeking help from a qualified chargeback management specialist is a great option here. This will let you prevent chargebacks, thereby eliminating the reason why the bank account is under investigation. It will also allow you to spend your time and resources into growing your business.
The Bank Suspects Illicit Activity
The Problem:
Under the USA PATRIOT Act adopted in 2001, banks have to report suspicious activity that might suggest money laundering or the funding of terrorism. As with other points we mentioned before, the bank could be rendering themselves liable if they don’t conduct due diligence about these activities.
The bank may get suspicious if they see sudden large deposits and withdrawals or transfers, especially overseas or involving unknown parties. They might also view false information in your customer record or maintaining multiple different accounts as red flags, too.
This doesn’t have to extend to hardened crime, though. Piggybacking off our discussion about chargebacks, banks can actually investigate a cardholder, and even freeze or close their account, if the banks suspects that individual is engaged in a practice called “friendly fraud.”
What to do:
If you’re wrongly suspected of criminal activity, you want to clear this up with the bank—and with law enforcement—as quickly as possible.
We suggest reaching out to the bank immediately. They can give you some information about the investigation, and advise you whether it’s necessary at this point to contact the authorities. Contact a legal professional right away if you’re at all involved in a legal investigation. They can help you either resolve the situation, or give you counsel in case any charges are filed.
Next Steps
So, now you're saying "I know my bank account is under investigation, and I know why. What do I do about it?"
For cardholders these cases tend to be more isolated. If you're not implicated in any criminal activity, then simply addressing the problem in the manner outlined above should work. But, if you're a merchant facing the problem of having too many chargebacks, it could call for a longer-term, more protracted strategy.
At Chargebacks911, we offer a variety of expert-deployed tactics and machine learning-based technologies designed to identify—and eliminate—chargebacks at the source. Contact us today to see how much you stand to save.
FAQs
How do I know my bank account is under investigation?
If your bank account is under investigation, the bank will typically notify you. You might receive an informal notification via email, but generally, you’ll also get a formal notification by mail. This is especially true if it necessitates the bank freezing your account.
Is my bank allowed to investigate my account?
Yes. Banks are actually required by law to investigate their customers’ accounts if they suspect criminal activity, regardless whether it’s perpetrated by or against the consumer. However, in cases of chargebacks, for instance, the bank might investigate as a matter of best practice if they see your chargeback rate approaching preestablished thresholds.
How long can a bank investigate your account?
There’s no formal legal criteria that sets a hard limit on the length of an investigation. In effect, a bank can investigate your account for as long as it needs to in order to determine whether they need to take action about fraud, abuse, or other issues.
Why is my bank investigating my account?
The reasons why a bank might investigate your account can vary. For consumers, it may be because they detected suspicious activity. For merchants, the most common reason is either to address suspicion of money laundering, or due to chargebacks.
How long can a bank legally freeze your account?
An account freeze resulting from an investigation will usually last for about ten days. However, there’s no set limit for how long a freeze may last. A bank can effectively suspend your account at any time for as long as they need to in order to complete a thorough investigation.
What should I do if my bank account is frozen?
Your first step should be to contact the bank to get the details of the situation. If your bank account is under investigation because someone tried to steal from you, they can advise you on steps to protect yourself and minimize the damage. If your account is frozen for some other reason, though, you should get what information you can, and possibly contact a legal professional (depending on the circ*mstances).
As an expert in banking regulations and financial investigations, I can confidently break down the concepts discussed in the article "Asking Yourself ‘Why my Bank Account is Under Investigation?’ One of These Could be the Reason."
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Bank Investigations and Legal Framework: The article rightly points out that banks have the authority to investigate customer accounts. This authority is grounded in a complex body of federal regulations. Financial institutions are mandated by law to take measures against fraud, ensuring consumer protection and maintaining the circulation of money and credit without issues. Banks can face serious consequences, including fines and prosecution, for failing to adhere to these regulations.
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Reasons for Bank Investigations: The article identifies five common scenarios that may lead to a bank launching an investigation:
a. Unauthorized Transactions: For cardholders, an investigation might stem from suspicions of unauthorized transactions on their accounts.
b. Chargebacks: Merchants may face investigations due to chargebacks, which can result from various reasons such as customer disputes.
c. Debts and Financial Obligations: Owning money to a creditor, whether it be mortgage debt, loans, or legal judgments, can lead to freezing or investigation of an account.
d. High-Risk Verticals: Businesses involved in high-risk industries, such as gaming, adult entertainment, or telemarketing, may find their accounts under scrutiny due to the increased susceptibility to chargebacks.
e. Illicit Activity: Banks are obligated to report suspicious activity under laws like the USA PATRIOT Act. Large or unusual transactions, especially those involving overseas transfers, may trigger investigations.
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Bank's Authority to Freeze or Close Accounts: The article emphasizes that banks, as outlined in customer agreements, have the discretion to freeze or close accounts based on their investigation findings. This underscores the importance of due diligence in protecting the bank and preventing fraudulent activities.
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Customer Recourse and Next Steps: The article provides guidance on what individuals should do if their accounts are under investigation for various reasons. Whether it's reporting fraud, addressing debts, navigating high-risk industries, managing chargebacks, or dealing with suspicions of illicit activity, customers are advised on appropriate steps to take, including reaching out to the bank, seeking legal advice, and understanding the potential consequences.
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Duration of Investigations and Freezes: The article clarifies that there is no formal legal criterion specifying the duration of a bank investigation. While an account freeze resulting from an investigation typically lasts about ten days, there is no set limit. Banks can suspend accounts for as long as necessary to complete a thorough investigation.
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Legal Obligations in Reporting Suspicious Activity: The USA PATRIOT Act is highlighted as a legal framework that obligates banks to report suspicious activities to prevent money laundering and the funding of terrorism.
In conclusion, the article provides a comprehensive overview of why a bank account might be under investigation, the legal foundations for such investigations, and the steps individuals should take in response to various scenarios. It is a valuable resource for both cardholders and merchants facing potential financial scrutiny.
