Mishandling your bank account can result in serious ramifications. Your bank has the right to close your account after you become overdrawn, but most banks wait before taking that step. Overdraft fees continue to accumulate and, if you do not pay, the bank will eventually act. Once your account is closed, additional consequences will occur that adversely affect your financial status.
Difficulty Getting New Accounts
It is often difficult to get a new account with an organization once you have mishandled an account with one bank. In most cases, your former bank will have reported an overdrawn and closed account to an agency called ChexSystems. This company will maintain a record of your history with banks where you had accounts. Even if you pay off all overdraft fees, you will remain in the ChexSystems database as an individual who had a bank account closed due to mishandling.
When you apply to other banks or credit unions for accounts, they might refuse to grant you an account or place limitations on the type of account you can open. In this case, you might consider opening an account with a bank that offers "second chance" checking accounts.
Check Verification Reporting
A account that's closed for incidents of overdrafting can result in vendors no longer accepting checks from you. This can happen if the bank reports your history to check-verification systems used by many large and small merchants.
If you write a check in a store, for example, the cashier might be unable to accept it because your name and account information have been reported to a company such as Telecheck or CrossCheck. These national companies keep an electronic database of information regarding a person's check-writing history usually using the individual's driver's license number.
Read More: How to Take Care of a Bad Check
Legal Problems With Bad Checks
It is illegal to pass a bad check. If your bank account is closed due to being overdrawn or for any other reason, you cannot continue to write checks on that account. If you do so, you are subject to legal penalties.
A merchant might sue you in small claims court for the amount you owe. If you write checks on a closed account, you might even be arrested and tried for the offense. If you are convicted of passing bad checks, you could face a jail sentence, a fine or both.
Credit Report Considerations
The Consumer Financial Protection Bureau reports that the closing of a bank account usually doesn't damage your credit rating. But the reverse is true if the bank that closed your account turns it over to a bill collector because you failed to pay the overdraft fees associated with the account closure. A collection account could appear on your credit report for as long as seven years.
To protect your credit score, you should settle accounts with the bank. Talk to a manager to arrange payments and prevent the debt from going to a collection agency.
Read More: How to Clear an Overdrawn Checking Account
Avoiding Account Closure
If you know that your account is in danger of being closed by the bank, you'll want to take immediate steps to remedy the situation. Contact the bank manager and ask how much money you need to deposit in order to avoid an account closure.
Consider borrowing the money from a friend or family member, selling a few items you no longer need or taking on a few lawnmowing or babysitting jobs. Once you satisfy the bank's requirements and get your account back in good standing, take extra care not to overdraw on your account.
- The Balance: Help! My Bank Closed My Account
- Consumer Financial Protection Bureau: My Bank or Credit Union Closed my Checking Account. Will This Hurt my Credit?
- Consumer Financial Protection Bureau. "What Is the Best Way to Move My Checking Account to Another Bank or Credit Union?" Accessed March 24, 2020.
- Office of the Comptroller of the Currency. "Answers About Automatic Withdrawals." Accessed March 24, 2020.
- Board of Governors of the Federal Reserve System. "Regulations - Savings Deposits Frequently Asked Questions." Accessed March 24, 2020.
- Wells Fargo. "Account Closing Letter," Page 1. Accessed March 24, 2020.
- Republic Bank. "To Shred or Not to Shred?" Accessed March 24, 2020.
Lisa Mooney has been a professional writer for more than 18 years. She has worked with various clients including many Fortune 500 companies such as Pinkerton Inc. She has written for many publications including Woman's World, Boy's Life and Dark Horizons. Mooney holds bachelor's degrees in both English and biology from the University of North Carolina at Charlotte.