Bank Account Closed? 7 Steps You Must Take Next
Maintaining a separate savings account at an online bank can act as an emergency buffer if your checking account is closed.
Having your bank unexpectedly close your account could result in late payments for bills that are linked to your account and potentially make it more difficult to get a new account somewhere else.
MyBankTracker looks at why banks close customer accounts and what to do if it happens to you.
Establishing a good relationship with your bank is important but if you're not careful, you could cause it to sour.
Repeatedly bouncing checks, letting your account lie dormant for an extended period of time or engaging in activities that are deemed suspicious are all reasons that your bank could decide to break up with you.
An account closure is inconvenient and it can hurt your ability to get a new account with a different bank.
If you've gotten a Dear John letter from your bank, taking steps to reduce the damage can make it easier to move your money to another financial institution.
1. Understand Why the Bank Closed Your Account
There are different reasons why banks may close customer accounts. As mentioned, you can ask the bank for an explanation. Here are some of the most common reasons that a bank closes an account.
Poor banking history
Banks may close an account if they view a customer as being problematic. A negative banking history can work against you and result in an account closure.
For example, the bank might close your account due if you:
- Repeatedly overdraft your account
- Are writing bad checks
- Have too many returned deposit items
Such costly violations will raise red flags. If your banking habits are eating into the bank's bottom line, then they may close your account to minimize losses.
Long-term negative balance
When you open a bank account, it's with the assumption that you're going to keep money in it.
Customer deposits allow the bank to make loans to other customers. They charge interest for those loans, which allows banks to pay interest on customer deposit accounts.
If your account has a negative balance and it's been that way for some time, the bank might close your account.
In that case, you might be able to reopen it by making a deposit to bring the balance into the positive.
Suspicious or illegal activity
Banks monitor customer accounts for signs of illegal or suspicious activity.
Large cash deposits or withdrawals, for example, might hint that your account is being used to launder money. So the bank might shut it down to investigate your account activity further.
Unusual spending habits can also put your account on the bank's radar.
For example, say you normally spend money in one geographic area. But suddenly, you make several purchases in a city that's in a different state.
If you didn't let the bank know beforehand that you'd be traveling, they might temporarily close or freeze your account for suspicious activity.
Bank account fraud is another reason for a closed bank account.
If the bank suspects fraud, they might close the account to prevent any further unauthorized purchases. A closure can be triggered if you make a purchase at a retailer with a known history of fraudulent activity.
You can also request to have a bank account closed if you know that cybercriminals or hackers have compromised your account.
A bank could close your savings account or money market account for excess transactions.
While federal regulations limiting savers to six withdrawals per month have been lifted, banks can still impose limits of their own.
If you make too many withdrawals from savings, the bank can convert your account to checking. Or the bank might just close it down instead.
2. Stop Your Direct Deposits or Automatic Bill Payments
If your paycheck is automatically deposited into your now-closed account, you'll need to let your employer know as soon as possible.
Waiting to notify payroll about the chance can significantly delay how long it takes to get paid since the bank will have to send the money back, which can take anywhere from 5 to 10 business days.
Once your employer is notified that the deposit was rejected, they'll have to issue a paper check, which might add another week or two on to your wait time.
You also want to make sure your automatic bill payments are suspended and you make other arrangements pay to until you establish a new bank account.
If you don't, then you're looking at getting hit with late fees or returned payment fees, which only adds to your financial headaches.
3. Check for Outstanding Overdrafts
In situations where the bank closed your account because it showed a negative balance, you need to pay up to avoid being shut out by other banks later on.
If an overdraft goes unpaid long enough, the bank can eventually hand your account over to a collection agency.
At that point, the negative account will show up on your credit report which can seriously drag down your score.
If you simply ignore the overdraft, there are a couple of things that can happen.
One, the collection agency will continue piling interest, fees and penalties on top of the original balance.
In no time at all, a few hundred dollars turns into a few thousand if you let the debt go.
The other thing you need to worry about is a debt collector suing you.
If they're successful in proving that you owe the money, that opens the door to wage garnishment or seizure of any other bank accounts you may have elsewhere.
Tip: Some banks may be willing to allow you to set up a payment plan or negotiate a settlement when you owe a substantial amount in overdraft.
4. Get a Copy of Your ChexSystems Report
ChexSystems is the company that banks report negative account information to and having a black mark on your record can seriously hurt your chances of opening a new account.
Negative information stays on your file for five years unless the bank updates it or requests to have it removed.
Getting a copy of your ChexSystems report won't cost you anything and it's a good way to see what your bank and previous financial institutions you've done business with are saying about you.
If you see something that's inaccurate or incorrect, you have the right to initiate a dispute to have the matter reinvestigated.
5. Check for Identity Theft
If your bank account is closed because of suspected fraud or identity theft, it's important to follow up. It's possible that if someone has hacked your bank account, they may have hacked your other financial accounts as well.
Here's a simple checklist to follow to identify potential fraud or identity theft:
Review financial statements
Pull bank account, credit card and investment account statements to look for any unusual or unauthorized transactions. If you spot something that looks off, report it to the financial institution that holds the account right away.
Review credit reports
Check your credit reports to look for any new credit accounts that you don't remember opening. That includes unauthorized credit cards, lines of credit and loans.
Consider a credit freeze
Freezing your credit is a good way to prevent new accounts--loans, in particular--from being opened in your name without your authorization. It's free to freeze your credit with the credit bureaus.
It's a good idea to update user IDs and passwords for financial account logins if you suspect identity theft. Also, be sure to set up multi-factor authentication for an added layer of security.
Whenever you suspect a lost or stolen debit card or credit card, you'll want to cancel it and request a replacement.
You may want to lock your card if you're able to until you can get in touch with the bank to order another one.
6. When No Resolution in Sight
You've reached out to the bank to explain the account closure. But the bank isn't forthcoming about providing a reason.
In that case, you can take additional steps to push the issue.
Reach out to the Consumer Financial Protection Bureau (CFPB)
The Consumer Financial Protection Bureau is a U.S. government agency that's responsible for ensuring the financial protection of consumers.
For a more in-depth review of your bank account closure, you can submit a complaint to the CFPB online.
To submit a complaint, you'll need to include:
- Key facts about what happened, including dates and communications with the bank
- Supporting documentation about the complaint, such as account statements
- Information about the bank
- Your contact information
The CFPB will forward your complaint to the bank. The bank then has a chance to respond.
Submitting a complaint online takes about 10 minutes. According to the CFPB, most companies respond within 15 days.
Contact your state attorney general
You can submit complaints about banks to your state attorney general's office or department of justice.
The process for filing complaints vary from state to state. But generally, you'll need to include the same information as you would when filing a complaint with a CFPB.
Keep in mind that you must be truthful when filing complaints. State law may consider it a crime to file a false complaint or report.
7. Evaluate Your Options for a New Account
If your account hasn't been reported to ChexSystems, you may not have much trouble getting a new one with another bank.
On the other hand, if it has, your options are more limited.
Not only that, but they generally charge fewer fees and pay higher rates on interest-bearing accounts than what you'd get at a traditional bank, which is an additional plus.
If you're not having any luck with an online bank credit union or smaller community bank, a second chance checking account may be the answer.
Many banks offer these types of second chance checking accounts, which are designed for people who have made mistakes in the past and need a fresh start.
These accounts tend to carry higher fees but, in most cases, there's the ability to convert them to a regular checking account after a certain period of time.
Temporary Alternatives When You Cannot Open Another Bank Account
If you're unable to get your closed bank account reopened or open another account, you have some options for managing your money.
Once again, take a look at second-chance checking. There are plenty of online and traditional banks that offer second chance accounts.
If you're not able to get second-chance checking, you might consider a reloadable debit card instead.
You add money to your account, then spend it or use it to pay bills as needed. Some prepaid cards allow you to set up direct deposits for your paychecks.
Non-bank financial services are another option.
For example, you might be able to manage money using:
- A cash management account at your brokerage
- Payment apps like PayPal or Venmo
- Finance apps that come with a linked debit card
Regardless of which option you choose, pay attention to the fees. These alternatives offer convenience but it's important to weigh the cost.
What is escheatment?
Escheatment is the process of turning over unclaimed accounts or assets to the state. A dormant bank account can end up in escheatment if there's no activity for an extended time period.
In the event that your bank account is closed and ends up in the state's hands, reach out to the comptroller or treasurer to find out how to get it back.
Will my credit score fall because the bank closed my account?
Bank accounts don't affect credit scores. So, a closure won't hurt your credit. Closures due to negative activity can, however, show up on your ChexSystems report. A negative ChexSystems history can result in being denied a bank account.
Can the bank reopen a closed account?
Usually no, banks won't reopen closed accounts. They would instead open a new account for you--meaning new account numbers too.