When your business bank account is closed, it might lead to late payments for salaries, vendors, and invoices tied to your account. To say the least, account termination is inconvenient, and it has the potential to endanger your business. You’ll undoubtedly want to know why your account was canceled, but your bank may refuse to provide details. Regardless of how aggravating it is for you, keep in mind that they have every right to do so, just like any other private company. Banks are not required to disclose the reason for account closure.
While it may come as a surprise when your bank account is closed, you can take action to protect your funds afterwards.
When a financial organization finds suspicious activity in a bank account, it will close it involuntarily. A bank has the right to close your account at any moment and for any reason, sometimes without warning. For example, a bank may close your account if you use it infrequently or never at all or if you bounce too many checks.
Following are some of the most prevalent reasons for a bank to terminate an account and ways to reopen them:
• Low or no activity:
Banks may put an account on hold if it hasn’t been used for a specified amount of time. Although an inactive account isn’t formally closed, the account owner can no longer make transactions. The length of time it takes for an account to become dormant is determined by state regulations and the policies of a specific bank.
A bank may cancel an account after being idle for a certain period and transmit the funds to the appropriate state government as “unclaimed property.” You’ll need to file a claim with your state’s treasury office to get that money.
Reopening the account: You can generally reopen a dormant account by performing a transaction (deposit or withdrawal) within a set time, though you should double-check with your bank to ensure that your transaction is sufficient. Before reclassifying an inactive account as dormant, banks should contact you. That notice will usually include details about how long you have to reactivate your account.
You can still revive your account after it has been classified as dormant by the bank. You will generally need to file a written request to your local branch to do so. There are no charges for reactivating an account.
• Suspicious activity:
If a bank discovers that an account has been used for fraud, the account will be closed. When a bank suspects fraudulent activity (whether the account holder was the offender or victim), the account will most likely be frozen while the bank investigates. Large transactions, regular account activity (especially if the activity is new or different), and transfers to foreign accounts might all be red flags.
Reopening the Account: Your bank will file a Suspicious Behavior Report with the US Department of Treasury if your account is closed due to suspicious or fraudulent activity. If this happens, you will be unable to reopen the account, and it is unlikely that you will be able to start an account with another bank.
You may be able to resolve the matter before your account is cancelled because banks will contact you before cancelling your account. You may be able to preserve your account if you can verify that there was no fraud or that questionable deposits came from genuine sources. On the other hand, banks reserve the right to terminate accounts for any reason they see fit, and they may refuse to do business with you if your account is judged a danger.
• Excessive overdrafts:
When an account customer regularly spends more than what is available, negative balances and bounced checks result. A bank can incur overdraft fees and force the account holder to deposit enough money to bring the account back to the required minimum balance. On the other hand, the bank may close the account if this happens repeatedly or if funds are not recovered.
Reopening the account: The quantity and frequency of overdrafts and the bank’s policies determine whether or not you can restore a bank account that has been closed due to overdrafts.
If your account has been closed due to a negative balance for an extended period of time, you can reopen it by paying the negative amount, which normally includes your transactions as well as overdraft fees for each item that is rejected. For more details, consult your bank’s account agreement.
You will almost certainly be unable to reinstate your account if it was closed due to a high frequency or recurring pattern of overdrafts. You’ll still have to pay off your negative balance and any costs that come with it.
If your checking account has been terminated owing to excessive overdrafts, the bank may allow you to open a savings account. For example, you might be able to create a new checking account at an online-only bank, a bank that doesn’t utilize ChexSystems or offers second chance accounts, or a ChexSystems-free credit union.
ChexSystems is a service that aggregates information about previously problematic accounts.
The issue with having your account linked to ChexSystems is that it will remain on their records for five years.
You should definitely check out more on Business Bank Account closures.
Under the appropriate circumstances and with the right bank, reopening a closed bank account is achievable.
The more complicated your account’s problem is, the more difficult it becomes to do so.
You can reopen your closed bank account by following the steps outlined above.
Know more about ‘What you can do when your business bank account gets closed’.