When you instruct your bank to make a payment, it must carry out your instructions. In some circumstances, however, your bank can refuse to follow your instructions. It can suspend the operation of your account, and this can be called either suspending, or freezing, an account. It usually means you cannot make any transactions.
A bank’s powers to suspend an account are set out in its standard terms and conditions (as well as in the Code of Banking Practice, which specifies minimum standards of good banking practice for New Zealand banks). You can view these online or at your bank.
In general, a bank’s terms and conditions allow it to freeze an account:
- to comply with a court order
- when you have been declared bankrupt
- when there isn’t enough money in your account
- when it has been notified of a dispute over either who owns the money in the account or who has use of the account
- to protect either one or all parties to the account, the bank or a third party with a reasonable claim to an interest in the account.
Sometimes a bank may simply freeze a certain sum of money in your account, such as when a court order applies to a specific sum that is less than the total amount in your account.
A bank may also partially suspend the operation of an account and allow some payments to be made – such as when a bank suspends a business account but allows payment of wages to employees.
Suspending an account during a dispute
A bank can suspend an account if there is a dispute about how an account is used or who owns the funds in it. For example, one of the account holders to a joint account may be in dispute with another account holder and ask the bank to suspend the account. Or, a bank may suspend a company account when one director tells the bank he or she is in dispute with another director. The bank may also suspend an account at its own discretion if it becomes aware of a dispute.
In such cases, it is not the bank’s role to consider or resolve the dispute. The disputing sides must work it out themselves. The suspension will stay in place until that happens.
We do, however, expect a bank to take certain steps when there is a dispute about an account. It must:
- check whether there is a genuine dispute, and if so
- suspend the account in accordance with the account terms and conditions
- notify the disputing sides of:
- the suspension and why it has been put in place
- what they must do before the bank will lift the suspension (usually reach an agreement and complete a new mandate).
A bank may also advise the disputing sides that they make have to take the matter to court if they cannot reach an agreement.
A bank does not have to tell account holders before suspending an account. This is mainly to protect the funds in it. Telling an account holder in advance would give him or her the opportunity to withdraw money. However, a bank must tell the account holder or holders after it has frozen the account, ideally as soon as possible afterwards. This notification extends to every account holder. A bank cannot simply rely on one individual telling the others.
Insufficient funds
A bank can suspend an account because the customer has insufficient funds to make payments or is in arrears. Banks can also put a hold or stop on the customer’s card. The customer needs to either transfer funds, if available, into that account, or arrange to repay the money. The bank will then lift the freeze.
Suspending an account when required by law
The Inland Revenue Department requires banks to verify the tax status of people who have opened accounts since 1 July 2017. This is done so tax authorities around the world can exchange information to ensure everyone is paying the right amount of tax.
If you don’t supply the required information, your bank may suspend or close your account. Therefore, respond promptly and honestly if your bank asks for details about:
- your tax residency and related information
- the nature of your entity
- the tax residency and related information of the individual(s) you hold an account for.
If you feel uncomfortable about giving this information over the phone in response to a phone call, get back to the bank on a publicly listed number (which you can get from its website).
Banks often freeze an account because of a dispute about the account or if the account has insufficient funds.
Bank froze accounts longer than justified
Harlow was a member of an incorporated society that had accounts with the bank, including term-deposit accounts. Three of the society's officers were signatories for the accounts. In 2017, the society became concerned the signatories were misappropriating funds from the accounts. As a result the society removed the signatories as officers of the society and a dispute arose, prompting the bank to freeze the accounts.
CASE 2Bank acted reasonably in freezing accounts during dispute
Rochelle, along with her sister and brother, had enduring power of attorney over their mother's finances. Rochelle’s brother contacted the bank in May 2022 to say he was concerned Rochelle and her sister might remove a large sum of money from their mother's accounts without his agreement. The bank froze the accounts and told the trio it was doing this because there was an apparent dispute among them, and it would unfreeze the accounts once all three wrote to it confirming how the account was to operate. It said it could also unfreeze the accounts if their mother gave it written instructions, and a medical professional confirmed she could understand and manage her financial affairs.
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…
Closing accounts
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 …
Updated December 2024