When your bank account is closed unexpectedly, it disrupts your finances in a huge way. You’re undoubtedly in a state of urgency to understand the reason the bank closed your account and find out what the next steps are.
If you’re wondering what possible justification your bank has for closing your bank account and what you can do, you’ll want to give this a quick read so you know what to expect when you call the bank.
What happens when a bank closes your account?
When the bank closes your account, you’ll see a few things happen:
- You’ll receive notice of account closure. It’s usually not far in advance or you may have found out when attempting to use a debit card that was declined despite a sufficient amount of money in the account.
- Your account may be frozen. Debits will be blocked and deposits won’t make it in.
- You’ll get your money back (usually). You may receive a check in the mail for the remaining balance, unless the bank suspects terrorism or other illegal activities. You can also go to a branch and receive a cashier’s check for the account balance.
- Customer service may not be very helpful. When you call customer service, they may not know the exact reason your account was shut down. Unfortunately, there are some times where the bank won’t tell you what they’re investigating when it comes to your transactional behavior.
Why did the bank close your account?
Banks are allowed to close your account for any reason. It’s not that they want to lose you as a customer, but they’re under a tremendous amount of pressure to prevent fraud, criminal activity, terrorism funding, and protect the bank’s interests. Some of these reasons may include:
Inactivity
If you haven’t used the account in three to five years, the bank may want to close it.
Negative balance
When money isn’t coming into your account and you don’t have enough to cover fees, the bank may shut down the account. Paradoxically, the bank may wait until the fees and overdrafts have been paid before closing it.
Suspicious activity
Banks are required to monitor customer transactions and file suspicious activity reports (SARs) with the Financial Crimes Enforcement Network (FinCEN) as part of the Bank Secrecy Act (or BSA) and USA PATRIOT Act. The number of SARs filed by U.S. financial institutions surpassed 3.6 million in 2022, which is roughly double the amount filed in 2016, according to a report by Thomson Reuters. While fraud is increasing, analysis by Thomson Reuters suggests that banks are also sending a lot of SAR reports they don’t believe are criminal, but are for avoiding regulatory criticism. Translation: Consumers who pose no threat to the banking system can get caught up in these reports.
Breaking account agreement
If the bank suspects you’re abusing the account agreement, your account could be closed.
Excessive overdrafts or bad checks
If you’re frequently overdrawing your account, the bank can drop you as a customer.
What to do when your bank has closed your account
Call the bank
Call your bank immediately to find out why the account was closed. If you’re lucky, there may be a simple solution, such as making a purchase with a debit card for an inactive account.
However, if it’s the account you use on a day-to-day basis and the bank thinks something suspicious is going on, it could take some time for it to get to the bottom of things.
Before you open another bank account, you need to find out the reason. That leads us to our next step should the bank be unable to reopen your account.
Dispute incorrect information
If a mistake was made, be sure to dispute the information both with the bank and with ChexSystems. ChexSystems is a consumer-reporting agency that provides financial institutions with information about your bank account, such as how often you overdrew the account. They help banks determine how risky your banking behavior is, in other words.
If your original bank closes your account and reports negative information in your banking file, it may be difficult to be approved for an account from another bank. It’s important to dispute the information the bank reported to ChexSystems so you’re not prevented from opening another bank account. The agency must investigate unless the report is considered frivolous.
You can also file a complaint with the U.S. Office of the Comptroller.
Pay the negative balance amount
If your bank account was closed due to a negative balance, you’ll want to pay it as soon as possible. You don’t want to be pursued by a collection agency hired by the bank.
Get your money back from the bank
If the bank closed your account and there is money still in it, you’re due a refund. The bank will typically send you a check, but if it suspects criminal activity on your part, it may be allowed to freeze your assets.
Open a new account
If it doesn’t look like your bank is going to sort out the account closure any time soon, you may want to open a new account. You need a way to receive money and pay for everyday life expenses.
If there’s still negative information in your ChexSystems report, whether it is correct or not, you may need to consider a second-chance bank account. Second-chance bank accounts may have some limitations, but you may be able to bank again.
Change direct deposits
If you’re unable to resolve the account closure with the bank, you’ll need to change over your deposits to the new account you set up.
Change automated bills to the new account
And since you have a new account, go through your bills and change your bill payments over to the new account.
How to avoid having your bank close your account
If you want to avoid a shutdown of your bank account, there are some good rules you’ll want to follow:
- Keep accounts active. Complete a transaction once in a while, even if it’s simply transferring money to a savings account.
- Follow account agreement. Whether you remember it or not, you agreed to the bank’s terms and conditions before you started using the bank account.
- Keep track of your balance and upcoming bills. Make it a priority to set some good habits for your finances and don’t spend more than you have in your bank account. Overdraft fees can accumulate quickly.
- Avoid transactions that may appear illicit. Large cash deposits or withdrawals will be monitored.
- Spread out your money. Don’t hold it all at one financial institution, just in case something like this does happen.
TIME Stamp: Call your bank, try to fix the problem and unfreeze your account
It’s not pleasant to lose access to a vital part of your financial life. Finding out the bank’s reason for closing your account and attempting to straighten it out is your best bet for keeping your financial accounts going.
If it’s not your fault and the bank won’t budge, look into opening an account at another bank. Just be aware if there’s negative information in your ChexSystems profile, you may have difficulty getting another account. You do have the right to dispute this information.
In the meantime, don’t forget to change your information for direct deposit and bills. You’ll be grateful you took the time to get your accounts back in order despite the setback.
Frequently asked questions (FAQs)
What happens when a bank closes your account with a negative balance?
The consumer must pay the bank the amount they owe. If they do not pay the amount of the negative balance, it will be passed on to a debt collector.
When a bank closes your account does it affect your credit?
A bank account that is closed with negative information doesn’t go on your credit report, but it does go in a consumer file with ChexSystems. This can prevent you from opening checking accounts in the future. You have a right to dispute information you believe is inaccurate.
Can you reopen a bank account if closed?
It depends on the situation. It is possible to reopen a closed account if it was closed due to inactivity. A bank may not reopen the account if it was closed due to irregularities, compliance issues, or a breach in the terms of service.
The information presented here is created independently from the TIME editorial staff. To learn more, see our About page.
