Banxit – What Happens When The Bank Closes Your Account?

There has been much made recently of the decision by Coutts bank to close down the account of Nigel Farage, with initial reports indicating that Mr Farage had fallen below the financial threshold of the prestigious bank. However, following a Subject Access Request, Mr Farage claims to have proof that the bank closed his account over his ‘values’.

Regardless of your stance on Mr Farage or his political positions, bank account closures represent a threat to anyone.  It is impossible to operate in modern society without some access to banking facilities.  Therefore, we look to set out some of the basics if, like Mr Farage, you find yourself being threatened with an account closure.

The Bank’s powers

The general position is banks, like any other private company, can choose who they will, or who they will not offer banking services with.  Unless you are a millionaire, Coutts will not do business with you and they are entitled to make that choice.  There are limits to that discretion; a bank cannot refuse to provide services if they are doing so based on a “protected characteristic” such as your race, or if you have a disability.  However, otherwise, the bank can choose who it offers services too.

The Bank’s limitations

If you are already a customer of the bank, the bank cannot end its relationship with you unless it complies with the terms and conditions that you signed up to when you opened an account with them.  You and the bank are parties to a contract and like any other contract, it cannot be terminated unless terminated in compliance with the terms and conditions of the contract.  In practice, customers do not negotiate their terms and conditions with the bank, nor do most customers read their terms and conditions.  Therefore, most banks retain the right to terminate within their terms and conditions, which could include:

1. Closing your account for any reason by giving you a notice; or
2. Closing your account as you have not used it for its intended purpose i.e. using a personal account to conduct business.

Additionally, when exercising its right to terminate, the bank must treat you fairly.  In practice, treating you fairly would likely involve giving you time to transfer existing direct debits or standing orders to another bank.  If the account has not been frozen, you may be able to do this using the Current Account Switching Service.

Why might the bank close your account?

Whilst the terms and conditions will likely give the bank the right to close your account for no reason, as long as notice is given, it is likely that the bank would seek to close your account due to suspected breaches of the terms and conditions.

Additionally, if the bank suspects the account is involved in criminal activity, such as money laundering, the bank will be entitled to freeze access to the account.  The bank would be committing a criminal offence if it told you this was the reason and you may need to speak to a criminal solicitor, if you suspect you are being investigated for a criminal offence.

What can you do?

Currently, if the bank decides to end its relationship with you, they must show they:

1. Complied with the terms and conditions;
2. Confirm it has not has done so on the basis of a protected characteristic; or
3. Have treated you fairly.

If the bank refuses to provide information, a Subject Access Request (“SAR”) can be made to seek further information.  The bank has a legal duty to provide information as part of the request to determine how the decision was made, as this might inform if you were treated fairly and help you understand why the decision was made.  If the bank made a mistake which you can show from the SAR, they may decide to change their mind, or give you grounds to challenge the closure.

You are entitled to raise a complaint with the bank and if you are not satisfied with the bank’s response, you can contact the Financial Ombudsman to investigate.  You may be entitled to compensation and payment of losses, such as the cost of any legal costs instructing a commercial litigation solicitor to assist.

The government, following on from the media intrigue from the Farage case, is currently considering further steps to compel banks to provide more notice or more information on the bank closures.  It is currently the case of watch this space.

How can we help?

Our Commercial Litigation team are specialists that can talk you through the steps in far more detail and assist you in considering any redress you may be able to have if your account is frozen or threatened with closure unfairly. If you are facing this position, contact us today for assistance.