Here's What to Do When Your Bank Closes Your Account

A closed account can lead to a financial headache or two. 

Imagine you're about to pay for groceries. You pull out your debit card only to be told the charge was declined by your bank. You wonder what gives. You've never had so much as an overdraft, and know that there's plenty in your checking account to cover the cost of groceries. Only later do you learn that the bank has closed your account.

Why would a bank close an account?

There are a number of reasons a bank may close an account. They include:

• The account is inactive
• The account has a negative balance
• The bank suspects you of committing fraud
• You have an excess of overdraft fees
• You break a bank policy

Must the bank notify you?

No. It may come as a surprise that banks can close an account for any reason and are not required to provide notice. Let's say you have several bank accounts and rarely use one of them. It's possible you won't know that the account is closed until you attempt to access funds.

What happens to the money?

If you have money in the account at the time it's closed, the bank is required to return it to you minus any outstanding fees. If an automatic deposit is made into that account after it's closed, those funds must also be returned. Typically, the bank will send a check.

If your account has been inactive for years and the bank doesn't know where to find you, the money may have been sent to the unclaimed property office in your state. Retrieving the funds is as easy as contacting the appropriate office and providing pieces of information that prove your identity.

Why does it matter?

Having a bank account involuntarily closed can be a hassle for years to come. Here's how:

When a bank closes an account because of an unpaid balance or suspected fraud, it's reported to a company called ChexSystems. Banks routinely request a report from ChexSystems before allowing a new customer to open an account, making it difficult for you to open a new account with another bank.

If an account is closed due to an unpaid bank balance, that debt could be forwarded to a collection agency. Once it's forwarded, that action is reported to the credit bureaus and can affect your credit score for up to seven years.

There are several pieces of good news here, though. The first is that you're entitled to a free copy of your ChexSystems report once a year. Look it over, and if you find any mistakes, dispute them with ChexSystems. Also, as soon as you pay off any outstanding balances with your old bank, you can request to have the record removed from your ChexSystems report. Finally, there are banks that do not rely on ChexSystems to screen new customers.

If you want to stay with your bank

Changing banks can be time-consuming. If you decide that you want to stay with your bank after an account is involuntarily closed, here are three steps you can take:

1. Find out why the account was closed. Call your bank and ask it to explain why they chose to close the account.
2. Pay the balance. If the reason the account was closed was due to an unpaid balance, find out how much it is and pay it off.
3. Ask to reopen the account. Once your account balance is settled, the bank may be willing to reopen it. If it’s unable to do that, you can explore opening a new account with the same bank. If the bank won't allow you to open a new account, it's time to look for a new financial institution.

If you have any reason to believe your account was wrongfully closed, contact the Office of the Comptroller's (OCC) Customer Assistance Group.

Ideally, you'll never experience an involuntary bank account closure. However, if it happens, you have options.