What are your rights if your bank account is frozen?
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Do you look like a criminal to your bank? Thousands of people a year now fit this description, judging by the number of complaints to the Financial Ombudsman about frozen bank accounts. The greater your bank balance and your international connections, the more likely you are to match the profile.
The decision to freeze an account often happens with no warning or explanation. Customers suddenly find they have no access to cash; their direct debits and standing orders are suspended.
The reason? Banks find it hard to distinguish between unusual account activity and criminal behaviour. They are caught between the need to prevent money laundering, and their duty to look after their loyal customers.
Under lockdown, financial fraud has risen sharply, and banks are on high alert for suspicious transactions. Yet at the same time, Covid-19 has limited access to in-branch services, putting increased strain on telephone helplines as customers attempt to resolve problems and ‘unfreeze’ their accounts.
Here, FT Money looks at the steps you can take to avoid being frozen out by your bank, and your rights if it happens to you.
Customer — or criminal?
Not only are banks and building societies allowed to freeze accounts without any notice if they see fit, they do not have to tell customers their reasons for doing so. Most customers never find out exactly why their account caught the bank’s attention.
This was the case for Alex, a reader who contacted FT Money in desperation when his savings account containing an inheritance of more than £100,000 was frozen.
He only found out when he tried to make a £2,000 bank transfer to his sister last year, and it wouldn’t go through. He was told to call a number to discuss why, and was told there had been suspicious activity and his account had been locked.
“My sister shares my surname, yet the bank decided this was so suspicious it immediately locked down all my accounts and turned off my internet banking access,” Alex says. “There was nothing more to it, absolutely no suspicious activity beyond the fact that I rarely transacted on this account.”
The fact that Alex was working in Australia made it much more difficult to resolve the problem. Staff at his bank’s call centre insisted he had to visit a UK branch with ID, and would not accept that this was not going to be possible because he was working 10,000 miles away. He had his passport and driving licence notarised by an Australian lawyer and sent these to the bank, but they were rejected.
As Alex was due to come back to the UK in March, he figured his only option was to wait until then and call in at a branch with the relevant ID — but the Covid-19 pandemic put pay to all that.
By then, the need to access the money in his savings account was even greater. Having hit a dead end with his bank, Alex contacted FT Money; we called his bank; and within two hours, Alex heard his account had been released and he could now carry out whatever transactions he wanted.
“Ultimately, I'm not sure what caused the bank to behave in the way they did, and this was one of the most frustrating aspects — their refusal to discuss the problem,” he adds.
So why had his account been frozen? During telephone conversations with the bank, he was reminded that when he opened his first account as a child more than 30 years ago he had used his first name of Robert, even though he was already known in the family by his second name — Alex. But his savings account, opened with the same bank decades later, only used his second name.
Could this have made him look like a criminal who had cloned someone’s identity to launder the proceeds of crime? Alex will never know, as his bank is not required to provide a fuller explanation. However, the relentless rise of banking fraud helps to explain why banks are on red alert.
The big freeze
Since the start of lockdown, over 5m people in the UK have fallen victim to a financial scam, or knew someone who had been duped, according to a study by Canada Life. The research found the most common financial frauds related to banking, accounting for 60 per cent of victims.
Banking customers were swindled out of more than £450m last year via push payment fraud, where people are tricked into transferring money online to a criminal who may even be posing as their bank, or another official institution.
Since March, the National Crime Agency has issued warnings about bogus calls, texts and emails from HMRC where victims are duped into transferring money to criminals, as well as a host of online scams involving the sale of face masks, hand sanitiser and testing kits which have never arrived.
Last week, the Investment Association warned that over £4m had been lost to scammers selling bogus investment bonds by impersonating legitimate financial institutions.
In all cases, the criminals need bank accounts to receive their ill-gotten gains and may target legitimate accounts held by ordinary customers.
A spokesperson for UK Finance, the banking trade body, says: “Tackling the threat of money laundering is of the utmost importance for the financial services industry,” adding that the regulations around account freezing were “designed to balance the requirements of preventing criminals accessing the banking system while ensuring that legitimate customers and businesses are not prevented from accessing accounts.”
“Financial sector firms may carry out additional checks or safety measures, including freezing accounts or requesting further information from their customers and clients to satisfy themselves that there is not a risk of money laundering entering the financial system,” the spokesperson adds.
As fraud has increased under lockdown, have the instances of frozen accounts also risen?
Neither individual banks nor UK Finance publish statistics about frozen accounts but it appears to be a growing problem, according to Resolver, the free online tool for complaints and claims.
“The number of complaints Resolver is seeing about frozen bank accounts across both household names and smaller ‘challenger’ banks show us that this is a growing issue,” says Alex Neill, the service’s chief executive.
In the last financial year, Resolver dealt with over 13,000 complaints about current accounts, with complaints about frozen accounts making up 8 per cent of all cases. In the current financial year, Ms Neill says, “this proportion remains higher than we have typically seen”.
The Financial Ombudsman Service (FOS), which steps into resolve complaints for consumers after they have come to the end of their banks’ own complaints procedure, estimates it receives around “50 complaints a week that are about account closures or suspension” although it has not seen this figure increase since the start of lockdown.
Most complaints involve cases of accounts being closed with no notice at all, or without sufficient notice for customers to make alternative arrangements. A spokesperson for the FOS says that customers are often told that their bank “closed or blocked their account because of regulatory obligations.”
However, account freezing appears to be a particular problem for customers of online or app-based “challenger banks”, which tend to have a higher ratio of complaints per 1,000 customers than the bigger high street names. For example, Resolver said it had seen a 153 per cent increase in complaints about Monzo in May compared with April.
“Freezing bank accounts and denying consumers access to their money is one of the most complained-about actions taken by challenger banks and money apps,” admits one senior executive of a UK digital payments app, who spoke to FT Money on condition of anonymity.
One reason could be that app-based fintech companies are much more adept at using technology to flag potential issues.
“Spotting potential fraud is usually algorithmic, running through transaction analysis to spot unusual behaviour,” he says.
If a large sum has been transferred, he says his staff may well ask to see a bank statement from the originator of the payment. Innocent customers may forewarn their banks of such transactions, but this will not necessarily stop the checks.
“Some fraudsters would also use this tactic to make the transaction look less suspicious,” he says.
In the majority of cases, a temporary freeze is quickly lifted. “Customers asked to prove their identity should take it as a positive thing, as it means we are trying to protect them,” he says.
Yet he admits to being staggered at how well-organised criminals are in their relentless quest to exploit loopholes in the banking system.
“Fraud is certainly increasing, and fraudsters are very innovative. They will often share information on compromised individuals and on methods that have worked with specific institutions, but banks are often far less sophisticated [at sharing information],” he says.
His organisation has weekly meetings where “we share examples of how fraudsters try to open accounts; attempt to take over accounts and process fraudulent transactions” as well as circulating articles about fraud and other sources of intelligence.
As a result, “team members regularly message the team leader with suspicions” that can lead to checks, a temporary freeze and potentially, account closure.
Even so, he suspects that bank fraud losses reported by UK Finance are greatly understated because many customers are “too embarrassed” to report that they have lost money “and have been made fools of”.
“The drive to close branches of legacy banks and encourage customers to transfer to online accounts can leave an ageing demographic, which is not computer-savvy, more open to manipulation,” he adds.
Your rights if your account is frozen
So how should the innocent prevent their accounts from being frozen? Transferring large sums of money between accounts is likely to attract suspicion.
As well as receiving an inheritance, another common trigger is selling a property and paying the proceeds into a current account. Banking customers may well be asked to provide proof of the transaction from their solicitor and estate agent.
Solicitors are also trained to prevent money laundering — if you are buying a property, they will commonly ask for evidence of where the deposit money came from, and will need to see copies of bank statements.
“Inform your bank before any planned activities — including incoming large deposits — that are out of the norm,” advises Resolver’s Alex Neill. “State explicitly where the money is coming from and why.”
This way, she says, your bank could put a note on your customer file “or request certain flags to be bypassed if it would result in your account being frozen”.
Nevertheless, if your account has been frozen, there is no guarantee that producing ID documents and paperwork will be enough to prevent your account being closed.
Which?, the consumer body, says that banks and building societies are entitled to close a customer’s account if they see fit.
“Usually they would be expected to give 30 days’ notice unless there are ‘exceptional circumstances’ where fraud is suspected,” a spokesperson says. “The fact that banks are able to freeze accounts without any notice means it can be worth spreading your money across more than one institution, to avoid being in a position where you are unable to access any funds.”
In some cases, banks decide they no longer want the business of a customer for commercial reasons. In such cases the FOS expects banks to give customers at least 30 days’ notice. The exception to this is when a bank suspects the customer of fraud or if they were threatening or abusive to the bank staff.
If customers feel they have been treated unfairly, they can take their case to the ombudsman, who may decide that compensation for financial losses are payable.
For example, the FOS says if a bank closes a customer’s account without giving them enough notice this might mean they fail to honour a cheque, direct debit or standing order payments. It could also lead to a direct loss in the form of interest or late payment fees and there could be indirect losses like “damage to a customer’s reputation or adverse information on their credit file.”
The FOS in its guidance to banks says: “If we decide you were wrong to close a customer’s account, or you didn’t give them enough notice, we’re likely to tell you to reimburse them for any direct costs.
“If you close a customer’s account without giving them enough notice, they may suffer distress and inconvenience because they can’t access banking facilities and have to find a new account.” In such cases, “we are likely to tell you to pay them compensation for distress and inconvenience”.
One couple who complained to the FOS had a business account that was occasionally overdrawn. They did not have a formal overdraft arrangement; the bank had refused to grant one but had allowed the overdrawing and even charged fees on the account for it.
When a new branch manager decided their account should be closed, she gave the couple four weeks’ notice, but it occurred a few days early, leaving a number of payments outstanding. The FOS recommended the bank pay them £4,750 and to provide the business with a letter explaining that payments had not been made because of the bank’s mistake.
The spokesperson added: “Your bank is entitled to close your bank account, but we’ll look at whether they treated you fairly in doing so.”
Frozen out of business by my bank
Banks' zeal in the fight against fraud extends to small business customers. Paul Cropper founded his company Renewable Innovations and Solutions, a Derbyshire-based engineering firm, in February. He had been battling against the headwinds from Covid-19 when in mid-June, HSBC froze his business banking account. He says this left him unable to access £46,500.
Mr Cropper says he was not notified in advance and only found out the account was frozen when he was unable to make a payment. When the engineer contacted HSBC, the bank refused to say why the account was being closed.
He has complained to the bank, and the financial ombudsman. A month on, he says HSBC has still not released his funds, despite promising several times he could withdraw the balance by cheque in person in a branch.
The company, which makes solar panels and kinetic generators, received a £50,000 bounce back loan under the government's coronavirus lending scheme in May, but Mr Cropper says he will soon be unable to pay staff or the customs tax due on imports of equipment.
“We have been put in a desperate situation through no fault of our own,” he says. “We need to save our business and the actions of HSBC go against everything the government is trying to do.”
A spokesperson for HSBC said: “There are times, following a thorough and objective review, that a decision is taken to end a relationship with a customer.”
The bank refused to provide any more details about why the account was being closed or when Mr Cropper will get his money back: “Although we can't always be specific about why we decide to close an account, a decision of this kind is never taken lightly,” the spokesperson added. Stephen Morris, Banking editor
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