Can My Bank Refuse Incoming Wire Transfers if the Account Is Overdrawn?

A bank always has the right to refuse to execute or receive a wire transfer. There are many reasons why the bank may refuse, most of them involving potential fraud. It is theoretically possible, but highly unusual, for a bank to refuse to accept an incoming wire transfer because the recipient's account is overdrawn.

A wire transfer is a fast and convenient way to get funds from one bank account to another. The transaction begins with the sender communicating with her bank, identifying herself and providing the name and number of the account the funds will be drawn from and the amount of the transfer. She also provides her bank with the recipient's name and bank account number and the recipient bank's American Banking Association routing number. This is the minimum required information. To avoid misunderstandings, a sending bank may also ask its client to provide the recipient bank's address and phone number.

The actual transaction occurs electronically through either the Fedwire system or the Clearing House Interbank Payments System (CHIPS). Both methods incur a small charge. Banks usually charge the sender a fee in the range of $25 to $35. Recipient banks often charge their customers $15 for incoming transfers. Many banks, however, waive these fees for valued customers.

In almost all cases, the recipient bank would have no reason to refuse an incoming wire transfer because the recipient's account is overdrawn. An exception might be a circumstance where the customer's account was overdrawn by an amount greater than the amount of the wire transfer. Since the bank always has the right to recover overdrawn amounts from customer accounts, it could determine that a small wire transfer into an account with a substantial overdraft would leave the bank with new unpaid charges.

For example, if you are expecting an incoming wire transfer, and your bank charges a $15 fee for this service, the amount of the transfer would have to be greater than the transfer fee for it to make sense for the bank to accept the transfer. It is hard to imagine anyone executing a wire transfer for an amount less than $15. That said, as allowed by the Uniform Commercial Code, bank customer agreements routinely include the bank's right to refuse to accept or execute any wire transfer request.

More often, a bank may refuse a wire transfer because it suspects fraud. According to a 2017 Javelin Strategy & Research report, losses due to stolen information and transfer fraud surpassed $2.3 billion dollars from 2015 - 2016. In most cases, either the sender's account or the recipient's account has been compromised. Fraudsters, for example, may take over a sender's account and send money out of the account by wire transfer to another account they control. Whenever a recipient bank's fraud detection software suggests this possibility, the bank may rightly refuse to accept the transfer.