Account Closures: What to do.

What to do if your bank closes your account

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HAS YOUR ACCOUNT BEEN CLOSED ?

From time to time, banks and building societies ask customers to close their accounts and make alternative banking arrangements. This happens most often if the bank is unhappy with the way in which the customer is using the account, or feels that its relationship with the customer has broken down irretrievably.

Customers who are in this situation usually feel that the bank has no right to close their accounts, particularly if they believe they have done nothing wrong.

Is a bank entitled to close a customer’s account – even without the customer’s agreement?

The general answer is – yes, the bank is entitled to do this. Like most other commercial organisations, banks and building societies are under no obligation to continue doing business with someone if they do not consider it appropriate to do so. But they should not decide to close an account for an improper reason – for instance, because of unfair bias (claiming bank charges ) or unlawful discrimination. And it is an implied term of the contract between the firm and its customer that the firm will not normally close the customer’s account without giving reasonable notice.

What is ‘reasonable notice’?

This is likely to vary, depending on the customer’s circumstances and the type of account. But the general rule is that the bank should allow the customer a reasonable amount of time to make alternative banking arrangements.

The Banking Code and the Business Banking Code both say that, in normal circumstances, banks should give customers at least 30 calendar days’ notice before closing their accounts. Examples of circumstances which are not ‘normal’ include suspected fraud, or cases where the customer was threatening or abusive to the firm’s staff.

For personal customers, the general view that 30 calendar days is enough time. But a longer period might be more appropriate for business customers. This is because a business is likely to need more time than a personal customer to make the necessary arrangements, particularly if there is an agreed overdraft on the account. Technically, an overdraft is repayable on demand. However, it is quite likely that a bank had not given a business enough notice if – for example – two months into a 12-month facility it changed its mind for no apparent good reason, and gave the business 30 days’ notice to make alternative arrangements.

Some banks say in their account terms and conditions that they will not close a customer’s account without giving a certain amount of notice. But if that is less than the Banking Code’s 30 days, then – as in all cases of potential conflict between account terms and conditions and the Code – the provisions of the Code take precedence.

Notice accounts.

Some accounts, usually savings accounts, allow customers to withdraw their money only after giving the bank a period of notice. Usually a bank is expected to take any such notice period into account if it decides to close the customer’s account. For example, if the firm wanted to close a customer’s 90-day notice account, it should arguably give that customer an equivalent amount of notice – that is, 90 days, rather than just the 30 days specified by the Banking Code.

Is the bank’s closure notice conditional or unconditional?

Sometimes, banks say they will close a customer’s account at the end of a set period unless certain conditions are met. For example, they might say they will close the account at the end of the notice period unless the customer brings the account balance back to within an agreed overdraft level. But this can give rise to confusion.

What if the customer brings the account up to date but then, by the end of the notice period, the account balance has crept back over the agreed overdraft? Has the customer met the bank’s condition or not? Here, it is important that banks make their intentions clear and unambiguous. Otherwise, it may be considered that the customer had met the firm’s condition and it was unfair of the firm to impose the original notice period.

Potential loss to the customer

If a bank closes a customer’s account without giving adequate notice, the customer could suffer losses if the bank – wrongly – fails to honour a cheque, Standing order and direct debit payments. Such losses could be in the form of interest, charges, or late payment fees levied by the intended recipient of the money, or they could flow from the actual failure to honour the payments.

If the bank is found to be wrong closing the customer’s account when it did, the bank is likely to be required to reimburse the customer with any such direct costs and possibly any further adverse financial consequences from the failure to honour payments, and those consequences were reasonably foreseeable by the bank when it decided to close the account. It would generally be expected that bank should compensate the customer. For business customers in particular, the bank’s failure to honour a payment could have extensive – and potentially disastrous – financial consequences.

Potential distress and inconvenience to the customer

If the customer has suddenly – without adequate warning – been left without access to banking facilities, it is possible that significant distress and inconvenience might result, not least when trying to set up a new bank account. In such circumstances, the bank are likely to be required to pay compensation. The actual amount of the compensation would be individually assessed, to take account of the particular facts and circumstances of the case.

Like any business, banks and building societies are free to decide who they want as their customers-just as consumers are free to decide who they want to bank with. It is recognised that the relationship between a bank or building society and a customer can sometimes break down for a number of reasons, and the closure of an account might sometimes be inevitable, where the proper procedure has been followed ( including giving the customer time to make alternative banking arrangements )

However, it is expected that the customer is treated fairly by their bank or building society, and that they should not be penalised for exercising their right to complain. The Financial Ombudsman’s Service investigate complaints from consumers that their bank accounts have been unfairly closed in retaliation for complaining about bank charges.*

Is it really retaliation, though?

Sometimes, you might think that your account is being closed as a retaliatory measure because you are reclaiming your charges, but it might not be the case. Before you complain to the FOS, remember that if you have already initiated your court claim, they will not get involved until that has been resolved.

Also, before you contact FOS, remember that it is unlikely that Customer Services or Litigation would have told Lending what is going on, so ask yourself this: Is my bank closing my account/calling my o/draft because I am reclaiming my charges, or could it be that they are unaware of what's going on? Have I made them aware that the account is in dispute?

Don't rely on the Litigation dept telling them, do it yourself. If the Lending office sees an account getting deeper and deeper in the red with no apparent communication from the customer, they will pull the plug, so it is in your interest to keep on communicating with them.

Don't rely on the Litigation dept telling them. You must tell them yourself. By doing that, you may be pre-empting a lot of difficulties. If you have a separate loan with the bank/building society, always try to maintain your payments as usual. This will prevent harassment by phone and letter from them.

If you then feel that the bank has unfairly closed your account or called in your overdraft. Without giving good reason or sufficient time to make alternative banking arrangements:

PLEASE HAVE NO HESITATION IN COMPLAINING OF YOUR ACCOUNT CLOSURE to the Financial Ombudsman Service.

Contacts for the FINANCIAL OMBUDSMAN: The Financial Ombudsman Service 183 Marsh Wall London E14 9SR

Consumer help line: 0845 080 1800

020 7964 1000 (switchboard)

+44 (0)20 7964 1000 (for calls from outside the UK)

020 7964 1001 (main fax)

• © Financial Ombudsman Service Limited, August 2005

FSA Accuses Banks of Lying

July 27th 2007

The Financial Services Authority (FSA) has rebuked current account providers for making “false or misleading statements” to customers. The City watchdog said that some institutions had lied to account holders to deter them from reclaiming unauthorised overdraft charges.

It said that some banks and building societies had closed or threatened to close customers’ accounts to punish them for making a claim.

In a letter to the chief executives of every bank and building society, the FSA said: “Whilst there may be some circumstances that warrant the termination of the commercial relationship, we would expect this to be a relatively rare occurrence . . . and not as part of a standardised (and seemingly punitive) policy towards those who have merely exercised their right to complain.”

Customers who have their bank accounts closed are often forced to miss mortgage payments and other important direct debit deadlines. This can harm their credit rating. The FSA has taken enforcement action against two firms, which could lead to hefty fines.

Deficiencies identified by the FSA from a sample of banks and building societies, and set out in the regulator’s letter, include:

— A failure to respond to complaints fairly and consistently, to address adequately the subject matter of complaints, or to ensure that complaints are resolved at the earliest possible opportunity;

— Unfair closure of accounts, or threats to do so;

— False or misleading statements made to complainants.

The full text of the letter is here