A man talking to a personal banker aboutwhy his account was frozen. It’s a terrible feeling. One minute you’re mindingyour own business, buying groceries or doing a little shopping online. The nextminute your payment is declined, and you discover the bank has blocked youraccount. When your bank blocks your account, they have to tell you. But theydon’t have to tell you ahead of time, and they won’t always tell you why. Ifyou suddenly had a payment declined when you know there’s money in the account,it could be days before a notice arrives in the mail. You need good informationon what happened to your account, and why. Here’s the list of reasons why yourbank account might have been blocked, what’s going to happen to your money, andwhat you need to do next.
Why Do Banks Freeze or Close Accounts?
Banks in the U.S. have to obey a verycomplicated system of federal laws. Federal banking laws require banks toprotect customer security. Banks have to cooperate with criminalinvestigations. They have to obey court orders about debt collection. The lawsalso hold banks responsible if one of their accounts is used for criminalactivity. Bank officers can be personally fined or sent to jail if they don’treport suspicious activity or stop it when they can. To protect themselves,banks will cut off accounts that could possibly be involved in crime, even ifthere is no proof.
Banks have a lot of leeway to freeze orclose accounts on a case-by-case basis. When you opened your checking orsavings account, you signed a customer agreement, and banks usually putlanguage into these agreements that says they can restrict or close youraccount at any time, for any reason or no reason. If you didn’t keep a copy ofyour customer agreement when you opened the account, we’ve collected linksbelow where you can download customer agreements for the top five retail banksin the U.S.
There are two different ways your bankmight block your account: by freezing it or by closing it. Make sure you knowwhich situation you’re dealing with. Whether your account is frozen or closedmakes a big difference in your options for solving the problem and in how longit can take to get access to your money.
We’ve listed below the most common reasonswhy a bank might freeze or close your account. Some of them can be cleared upwith a phone call while others will require you to send in paperwork or get alawyer. Unfortunately, there are also some freezes or closures you might not beable to do anything about.
For Your Security
A security freeze on your account is foryour protection. If your bank notices purchases that don’t fit your normalpattern, it may suspect that your account was hacked or your wallet was stolenand put a temporary freeze on your account to keep your money safe.
You might find out about this freeze whileyou’re standing at the checkout counter or trying to buy something online. It’sembarrassing, but remember that these things can happen to anybody. A securityfreeze can usually be cleared up with a phone call to verify you are the onemaking the purchase.
You might get a notice in the mail about asecurity freeze. The notice will contain instructions on your next steps. Insome cases, your bank’s fraud department will call you to verify your recenttransactions.
But be very careful! According to U.S. News& World Report, scammers may contact you pretending to be your bank’s frauddepartment. They will try to trick you into giving them access to your bankaccount. Never click on any links in an email that says your bank account isfrozen. Never give out your Social Security number, bank account number, or PINnumber to a caller. Don’t call any phone number given to you.
Instead, find your bank’s fraud departmentnumber on the back of your debit card or on your statement and call directly.You can also use the list below of customer service links for major banks. Ifyou get a notice or call about a security freeze that your bank didn’t send,keep an eye on all your credit and bank accounts. It’s a good idea to takeprecautions against identity theft.
For Unpaid Debts
A creditor can get a court order and forceyour bank to freeze some or all of your account. Creditors can freeze up to twotimes the amount you owe, and if your debt is bigger than your account balance,they may freeze the whole thing.
Creditors can freeze your account for anytype of debts, including:
Mortgages
Car loans and personal loans
Student loans
Judgments or liens from civil lawsuits
Divorce settlements
Child support
Back taxes
It may not even be your debt! If you havesomeone else’s name on a joint account with you, and that person owes money,your account could still get frozen.
For Suspicious Activity
A bank can either freeze or close yourcount for suspicious activity — the results will be different depending onwhich the bank chooses.
Freezes
To prevent money laundering and terrorism,federal banking laws require that banks report certain types of suspiciousactivity to the Treasury Department. Most people have nothing to do withterrorists or organized crime, but certain patterns of behavior or dollaramounts can be automatic red flags in the banking system.
Suspicious activity can also mean passingbad checks, receiving money from crimes, hiding or holding money for someonewho’s in trouble, making transactions with questionable people, or beinginvestigated or convicted of a crime.
You might not do any suspicious activitiesyourself, and the suspicious transactions might not have happened in the sameaccount that you’re dealing with. You could get flagged for transactions that“fit the profile” but are totally legitimate. You could be the victim of checkfraud or account hacking. You could have a joint account with someone else whois in legal trouble or who had suspicious activity in a different account.
Many different activities can trigger afreeze:
Large deposits and withdrawals from an unknown source. If there’s alot of money going in and out of your account that isn’t from a recognizablejob or if you didn’t list an employer when you opened the account, that canlook suspicious.
False or misleading information in your customer record. Make sureyou give a valid address and phone number when you open the account. If youmove or your number changes, update the bank as soon as you can. A disconnectedphone number is a red flag.
Withdrawals against a returned check or a pattern of depositingreturned checks. Be very careful about getting paid by check. If you deposit acheck that turns out to be worthless, it could trigger a freeze on youraccount. If you cashed the check or withdrew some of the money, the bank maythink you are committing fraud on purpose.
Large transfers of money, especially overseas. Banks have to monitortransfers and report on specific dollar amounts, like $5,000, $10,000, $25,000,or $50,000. If you make transfers like that, or if you make a series oftransactions that add up to one of those amounts, it’s a red flag.
Frequent cash transactions. A lot of honest people get paid ortipped in cash. Unfortunately, criminals prefer cash too.
Multiple accounts in the same name, or frequent transfers. If youhave a lot of different accounts, especially if you move money between themfrequently, the bank will wonder why. Federal law limits you to six withdrawalsfrom savings accounts per month. If you often bump up against this limit, itcan look suspicious.
Deposits from questionable sources. If you’re receiving money from aperson or a business with suspicious activity, it can trigger an investigation
A sudden increase in activity. If your normal pattern of deposits andpurchases goes up dramatically, either in frequency or in dollar amounts, thebank may become wary of you.
Buying high-risk items or large cash withdrawals. Some people liketo save up for big purchases and pay cash, but this may cause the bank towonder if you’re laundering money. Buying high-risk items like guns, coins,precious metals, or art raises the same question.
Out of state or foreign activity. If you don’t live or work in thesame city where your account is located, it can trigger a freeze.
Reports of suspicious activity from other banks. Banks reportcustomer problems and closed accounts to a central agency called ChexSystems.If you had a problem with one bank, it can affect all your accounts.
Suspicious activity freezes can be thetrickiest to deal with. Sometimes law enforcement forces the bank to place afreeze. If there’s an ongoing legal investigation, the bank may be under a gagorder and your customer service representative may not know what’s going on orit might be illegal for them to tell you. However, if the freeze is based onjust one problematic transaction or a recent pattern that got red-flagged bycoincidence, you may be able to clear it up by showing where the money camefrom and what it was for.
Closures
A red flag on your account can trigger afreeze, but if you can show your transactions are legal it can usually becleared up. Some banks won’t take a chance — they might just close your accountat the first whiff of trouble. Remember, the broad discretion built into thosecustomer agreements lets them close an account at any time.
In addition to all the suspiciousactivities that can trigger a freeze, the bank may close your account if youfit a profile of behavior:
You’re convicted of a crime. Some banks will refuse accounts tocustomers with a criminal record. But if you had a previous conviction and thebank finds out, or if you’re convicted while you’re a customer, they can closeyour account.
You’re in a business considered high-risk. Banks may close or refuseto open accounts for people in certain lines of work, even if the business islegal in the state where they live. In 2011, the FDIC published a list ofbusiness categories that banks were supposed to monitor, and a lot of banksjust refused to open accounts for those businesses at all. The FDIC took downthe list in 2014, but some banks still don’t like to work with thesebusinesses. Potential red-flag businesses include:
Gun, ammunition, and firework dealers;
Online gambling, escort services, and p*rnography;
Coin dealers;
Payday lending and check cashing;
Medical or recreational marijuana and drug paraphernalia;
Telemarketing and some multi-level marketing systems;
Home-based charities and advisors on getting government grants.
For Administrative Reasons
Banks, like any large company, go throughreorganizations. They may close down your branch or stop doing business in yourstate.
Your bank may also close your account if itis dormant, meaning you haven’t used it for a long period of time. Depending onwhat state you live in, an account may go unused for three to five years beforeit’s considered dormant. You may get a notice that the bank wants to close adormant account, but if you’ve moved they may not be able to reach you. You cankeep your accounts from going dormant with a few simple steps: review all youraccounts regularly, set up automatic transfers in or out of the account, andmake sure the bank has your contact information up to date.
For Financial Problems
There’s a phrase in most bank accountagreements that says the bank reserves the right to close your account if itbelieves there is a risk of loss or liability, meaning your account will beclosed if your financial problems are costing the bank more money and hasslethan it can make off of you. It really seems like being kicked when you’redown, but the bank does have the legal right to do it.
There’s a wide range of problem financialevents that can trigger the bank to close your account:
Too many bounced checks or overdrafts — and they get to decide howmany is “too many” on a case-by-case basis. (suggested article: How Much Can IOverdraft My Checking Account? The Answer…)
Too many transfers between accounts. As we explained above, thereare legal limits on transfers between some kinds of accounts. Even if you’reunder the legal limit, the bank can still shut down your account if they thinkyou’re making too many transfers.
Too many deposits of checks that get returned unpaid. This couldhappen to anybody once or twice, but you should be very careful who you acceptchecks from in order to stay in good standing with your bank. (suggestedarticle: Penalty for Cashing a Check Twice: Banks Fees, Legal Claims, &More)
A zero balance or a negative balance. If you owe the bank money orthe account is sitting empty, you can be shut down.
What Happens to Funds in a Frozen orClosed Account?
The answer to what happens to your fundsdepends on whether your account was frozen or closed.
Frozen Account
A frozen bank account can still acceptdeposits, but the new money will probably get frozen too. It’s important tochange your direct deposits right away. If your paycheck deposit has alreadybeen sent but hasn’t posted to your account yet, see if your employer will workwith you to cancel or reverse it. As the payer, they may have more influencewith the bank to release the money back to them.
In most situations, the law protects youfrom having federal benefits (like Social Security) frozen — the ConsumerFinancial Protection Bureau has published a full list of such protectedbenefits. If you owe money to the federal government, like taxes or studentloans, or if you have unpaid child support, the law may not protect you. Evenif your benefits are protected, you might need a lawyer to help you get themoney.
There’s no law that limits how long afreeze can last, and banks don’t publish policies on how they make decisionsabout account freezes. How long your money is tied up depends on yourindividual situation and the judgment call of the officers at your bank.
If the freeze is for your protection or iseasily cleared up, the bank will normally release your account as soon as you getin touch and verify the right information. If your account is frozen becausethe bank is investigating your transactions, freezes typically last about 10days for simpler situations or around 30 days for more complicated situations.But because there are no hard-and-fast rules on this, it’s best to assume itcould last a long time. Get a backup plan in place as soon as you can.
If the freeze was placed because of a legalinvestigation, the account must remain frozen until law enforcement lets thebank release it. If your account was frozen for debt collection, the courtdecides when to lift the freeze. You may be able to get access to part or allof your money by negotiating a payment plan with your creditor.
Closed Account
The bank has to return your money when itcloses your account, no matter what the reason. However, if you had anyoutstanding fees or charges, the bank can subtract those from your balancebefore returning it to you.
The bank should mail you a check for theremaining balance in your account. Your notice letter about the account closingshould tell you when to expect your check — usually within ten days. How to getmoney from a closed bank account is a matter of cooperating with the bank whowill be looking to get your money back to you.
If it doesn’t state a time frame, or ifyour money doesn’t arrive on time, call the bank to follow up. You may need tocall several times to get a good answer. When a bank closes your account, itisn’t trying to impress you with great customer service. Sending out your checkisn’t a high priority. Be persistent, and you’re more likely to get that checkquickly.
What Happens Next?
Banks block your account first and notifyyou afterward. That means you’ll probably find out that your account is frozenor closed at the worst possible time — when you’re trying to make a purchase orwhen a check bounces. Try not to panic. Most of the time, this is a temporaryinconvenience that you can straighten out pretty easily.
The first thing you should always do is getin touch with your bank. If you already have written notice, there may be moreinformation about which department you should contact or a case number. If youhave any reason to suspect the notice isn’t real, call the fraud number on theback of your bank card or call customer service directly. We’ve listed thecustomer service links for five major banks in the next section.
If you can’t get the problem correctedimmediately, you need to make sure you’re not going to bounce any more checksor have any deposits going into a frozen account. You don’t want to rack upfees or lose access to any more of your money. A freeze or account closuremight not hurt your credit, but bounced checks and declined payments will.
Call your payroll department right away,and change your direct deposits to a different account or have them cut a papercheck. Do the same with any benefit agencies or family members who might sendmoney into your account.
Look over your records for any checksyou’ve sent out. Call the payee to make sure they don’t try to cash that check,and set up a different form of payment. You’ll also need to change any regularbills that are set up to auto-pay from that account.
Keep copies of all notices and letters fromyour bank about the situation. Take notes of every phone call, and write downthe name and ID number of every person you talk to. Every piece of informationmight help solve the problem or clear your record later.
If Your Account Is Frozen for YourSecurity
Most of the time, a simple conversationwith the bank’s fraud department will solve a temporary security freeze.
If your account has been hacked or youridentity stolen, the bank will work with you to report it. Check your lastseveral bank statements carefully, and keep an eye on them going forward. Thereare legal limits to how much money you can lose to ID theft, based on how thethieves got access and how soon you reported it to the bank.
Your loss is $0 if you report the theft before any transactions aremade. If the bank allows any fraudulent transactions after you make a report,they have to reimburse you. They also have to reimburse you if you still haveyour debit card and your account was hacked, as long as you report it in thefirst 60 days after your bank statement is sent.
Your loss is limited to $50 or less if you report it within 2 daysof finding out.
Your loss is limited to $500 or less if you report it more than 2days after finding out but less than 60 days after your bank statement is sent.
You could lose your whole balance if you don’t report it until morethan 60 days after your bank statement is mailed. You could also lose thebalance in any linked accounts.
You’ll also need to report ID theft to thepolice, the Federal Trade Commission, or both. The FTC has published achecklist on what to do if your identity is stolen. You can also use its onlinereporting tool.
If Your Account Is Frozen for UnpaidDebts
Here’s what you should do if your bankaccount is frozen for a debt or judgment:
Find out who the creditor is. The bank may not give you informationabout the debt, but it should tell you who got the order for the freeze. Ifit’s not listed on the notice from the bank, call and find out.
Get legal advice. If you can’t afford a lawyer, you can find legalaid near you. If you’re in the military, you can get help at your local JAGoffice.
Consider credit counseling. A credit counselor can help you plan arealistic budget and come up with a payment plan. The court may release thefreeze on your account if it accepts your plan. Find out more about workingwith a credit counselor.
Find out more from the Consumer Financial Protection Bureau aboutjudgments and liens on your account.
If Your Account Is Frozen or Closed forSuspicious Activity
Frozen
Your bank may be able to tell you whatspecific transactions triggered the freeze and will walk you through whatdocumentation could help unfreeze your account. Cooperating with them isusually the fastest way to solve the problem.
If your situation is more complicated, youmay not be able to get a straight answer about the reason for the freeze or howto solve it. If you own the account jointly with anyone else, talk to them andsee if you can discover anything that raised a red flag with the bank. Lookover your past few months’ transactions and make sure you recognize them all.
If you can’t find out a specific reason forthe freeze, or you think it was done in error, you should get legal advice. Howlong can a bank account be frozen? There is no time limit.
Closed
Being reported for suspicious activity isserious. A closed account can affect you, anyone you have a joint account with,and possibly anyone you paid or did business with. The closing will be filed asReported Information to ChexSystems and could trigger all your other accountsto get frozen or closed. The report will stay on your file for five years, andit can seriously damage your ability to open another bank account.
If you can find out what suspiciousactivity triggered the closing, try to clear it up as quickly as possible. It’snot likely that the bank will re-open your account, but if you can show yourtransactions were legitimate or that you were the victim of someone else’s badactions, it’s possible.
If your account was closed by mistake orbecause of someone else’s actions, you should get legal advice. You can alsodispute the information with ChexSystems or add a statement to your file.
If your bank account gets closed can youreopen it? With nearly every bank, yes. They will be happy to reactivate youraccount once you get in good standing again.
If Your Account Is Closed forAdministrative Reasons
If your bank is reorganizing or changingoperations or if an account went dormant, you haven’t done anything wrong. Itshouldn’t affect your credit report or your customer profile in ChexSystems.
It’s a good idea to look at yourChexSystems report, just to make sure the information is correct. You’reentitled to one free report each year. Request your annual Customer DisclosureReport from ChexSystems.
If Your Account Is Closed for FinancialProblems
If you bounce a check, overdraw youraccount, or have an account closed for cause, it may show up on yourChexSystems profile as “Reported Information” or a “Reported Event.” ReportedInformation stays on your file for five years.
If your bank closes your account forfinancial problems, it probably won’t re-open it. You may also have troublegetting a new account at another bank.
You can dispute incorrect information inyour ChexSystems file. If the Reported Information is true, there’s nothing youcan do to get it removed. If you pay back any money you owe the bank, the bankhas to add that update to your file. It’s possible they might get ChexSystemsto clear your file. They don’t have to do it, but you can ask.
Customer Information for Major U.S.Banks
We’ve collected the links you need for thetop five retail banks in the U.S. You can find out the terms of your account,see which sections apply to account freezes or closures, and contact CustomerService.
Banks offer different types of accounts indifferent states, so you may need to enter your ZIP Code to download yourbank’s Customer Agreement. The agreements we’ve linked to below state that theyapply to most checking and savings accounts in the U.S.
