A bank can end its relationship with a customer at any time, just as a customer can move to another bank at any time. A customer may move because a competitor offers a better deal or because the relationship with the bank is unsatisfactory or has broken down. A bank may decide to close a customer’s account because of how that person has been operating it, or because of regulatory requirements, or because the bank also feels the relationship has broken down. Banks are under no obligation to continue doing business with a person or company, but they should not close an account without good reason.
However, difficulties can arise when a bank ends its relationship with a customer based on its perception of customer conduct. It can be extremely confronting for a customer to be accused of abusive and threatening behaviour, particularly if the customer considers they did not act that way and/or the bank contributed in some way to the situation – for example, by making an error.
A decision to exit a customer on conduct grounds should therefore be handled with care. The Code of Banking Practice requires banks to act fairly, reasonably and in good faith. We consider this means the bank should, when considering closing a customer’s account:
- ensure the assessment is made by someone independent, who has not been directly involved in interactions with the customer
- examine all available information, including, if possible, CCTV footage
- keep an open mind to the possibility that staff may have acted inappropriately
- consider whether another course of action besides closure would suit everyone’s interests, such as a warning to the customer or offering remote banking services only
The process
Generally, a bank should not close your account without giving reasonable notice, which typically means giving you enough time to make alternative banking arrangements. Usually we would view "reasonable" as at least 14 days' notice.
In some limited circumstances, however, a bank can close your account without giving you any notice. These may include:
- if a bank is complying with a court order
- if you have fraudulent activity related to your account
- if you have breached the bank’s terms and conditions
- if you have acted abusively towards bank staff.
A bank does not have to explain why it is closing a customer's account, although in most cases banks follow good practice and give a reason. This gives the customer an opportunity to respond if the bank has misunderstood the facts of a situation or made a mistake.
A bank must return all the money in a customer's account at the time it closes the account, less any interest or fees that apply. A bank normally does this by transferring the money to the customer’s new bank account.
How we look at closure complaints
Complaints about a bank closing an account usually involve a customer challenging the bank’s reasons for doing so. Two of the most common reasons why a bank closes an account are:
- the customer has used the account inappropriately – for example, the account is continually going into unarranged overdraft
- the customer has abused a staff member in some way, either verbally or physically.
In the first situation, it can be costly for a bank to monitor an account that is in overdraft. Therefore, a bank may decide that it does not wish to continue to offer this facility to a customer.
In the second situation, a bank has a duty as a good employer to protect its staff from abuse and violence. In these circumstances, we would expect a senior member of the bank who was not subjected to the abuse to make the decision to close the account.
Most people who complain to us about their account being closed want us to either stop the bank from closing their account or to get the bank to reopen their account. However, although we can award compensation for direct loss or inconvenience if we find some wrongdoing in the way the bank closed the account, we cannot require a bank to stop the closure of an account or reopen one.
If a complaint is solely about a bank's decision to close an account, and there are no concerns about how it was done (such as if the bank failed to give adequate notice), then it is unlikely we will investigate.
A bank may also need to consider closing accounts if it is unable to meet regulatory requirements, such as anti-money laundering legislation (see our AML Quick Guide) or international tax compliance regulations (more information is available here). Banks are required to collect certain information about customers and others involved with an account. Such information may include the customer’s identity, place of residence, tax residence status and source of money credited to accounts. If the information is not received, the bank may cease doing business with a customer.
Your account may be closed without notice if it has been used inappropriately or if your conduct towards a staff member is abusive.
Bank’s closure of customer’s accounts based on flawed assessment of her behaviour
In May 2023, Poppy had trouble opening a term investment because branch and contact centre staff gave her conflicting and incomplete information. In calls to the contact centre, she expressed frustration at the poor service she had received from branch staff. She went back to the branch to try to get help, and the bank subsequently wrote in a report that she had behaved aggressively.
The bank wrote to Poppy saying it intended closing her accounts because of her aggressive behaviour. It also said it would issue a trespass order preventing her from visiting any branches in her area. She challenged the decision, saying she had not been aggressive, but the bank refused to reconsider. It also said she had been filming in the branch, an assertion she denied.
Poppy made a formal complaint to the bank about its decision. The bank referred the complaint to the staff member who had made the decision, and he reiterated the bank’s position. Dissatisfied, Poppy complained to us, but by then her account had been closed. Poppy had power of attorney over her elderly parents, and since she could not visit any local branches, they also had to move their accounts to a new bank.
Inadequate response to bank’s information requests justified closure of customer’s accounts
In mid-2023, Landon's bank emailed him seeking information about his accounts, his companies and his income sources. It said it was seeking the information in order to comply with its obligations under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009. Landon supplied the information, which included financial statements for his companies, but the bank replied that what he had provided was not sufficient. The bank asked for further information, which he supplied, and the bank asked for yet more documents. In total, the bank made five requests over a four-month period, at which point Landon complained to us that the requests were entirely unreasonable. He also complained that the tone of the emails was inappropriate and threatening. Specifically, the bank threatened to close his accounts unless he complied with its requests.
CASE 3Bank not obliged to write off debts after closing customer’s accounts
Stacy complained that the bank had acted unreasonably and unfairly by closing her accounts. She also said she should not have to repay her debts to the bank because a bank, when ending a customer’s relationship, had to write off all that customer’s debts.
Deceased customers' accounts
A bank will freeze a deceased customer’s individual accounts when notified of the death. This includes transactional accounts, term deposits, credit cards and loans.
Banks won’t necessarily know that a customer has died, so it is important to notify the bank as soon as possible. Anyone can notify the bank but typically this responsibility would fall on the next of kin or the estate representative…
Children's accounts
Children don’t have unrestricted use of bank accounts. Nor are they free to open bank accounts on their own. To do that, they need an adult’s involvement. The role of adults (usually the parents) is to decide what type of account would be best for the child. They also decide who can have access to the account.
The rules governing who can operate an account are set out in a document called an acco…
Account mandates
An account mandate is a document that sets out:
who owns an account (often called the account holder or account owner)
who can use the account (and how it can be used, referred to as authorised signatories)
who can access information about the account.
A mandate is very straightforward if you are the only one operating an account. But you need to take care if there are two or more account holder…
Updated December 2024