Can a Bank Close an Account Without Giving the Person Their Money Back?

Closing a bank account can be complicated because of rules and regulations that are not always clear. Whether the decision to close an account is initiated by you or your bank, you naturally want to get all of your money back. The end result will often be influenced by a mixture of legal requirements and individual banking guidelines.

“Federal banking laws and regulation do not address the closing of deposit accounts,” the Office of the Comptroller of the Currency notes on its website. Banks are generally allowed to close accounts without advance notification. However, each state can have its own banking regulations, some of which do apply to the closure of financial accounts.

Consumers are protected by a number of laws that limit what banks are legally allowed to do. Key examples include the Equal Credit Opportunity Act and the Federal Trade Commission Act. Various state laws have also been enacted to regulate banking practices. In most cases a complaint filing process has been established to facilitate the reporting of grievances against banks. Such processes, however, often fail to provide a timely solution if a bank has already taken action to close an account.

Some of the common reasons that banks close accounts are fraud, overdrafts, and inactivity. When illegal activity such as identity theft is involved, a bank might close an account without immediately returning funds. Many banks have account agreements that permit them to charge inactivity fees. In these and other situations involving permissible bank fees, some or all funds might be applied toward payment of outstanding transaction costs. In some cases, such as tax liens, banks will be required to withhold funds from the account owner.

The Consumer Financial Protection Bureau is a federal government agency that provides help and guidance to customers of financial institutions regarding their legal rights. The Federal Deposit Insurance Corporation has issued the “FDIC Depositor Bill of Rights” as a clear reminder of what customers can expect when dealing with an FDIC-insured bank. In spite of existing help from agencies such as the CFPB and FDIC, closing financial accounts is still subject to a healthy dose of confusion at times. Bank customers should be prepared to seek additional guidance if they encounter any uncertainties about closing a bank account.