Banks adopt several measures to tackle money laundering, terrorism financing, fraud, cybercrimes, etc. One of the most effective and effective methods bank use to combat such crimes is account freeze. A bank can freeze your account for several reasons. Should your account be frozen for something you did or didn’t do, what are your rights?
If a bank freezes your account, you have the right to contact your bank and make inquiries regarding the reason behind the freeze. While communicating with the bank, ensure you don’t hide any detail to help them solve your case quickly.
Bank account freeze is quite common. Should your account be frozen, it is crucial you understand your rights. But that’s not all! You also need to understand what an account freeze is and why your bank may decide to freeze your account. Lucky for you, I have covered all that in this article.
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What Are Your Rights if Your Bank Account Is Frozen?
How do you react to a bank account freeze? What is an account freeze? What happens when a bank decides to freeze your account? To understand your fights if your bank account is frozen, it makes sense to understand what an account freeze is.
What is an Account Freeze?
An account freeze is a measure taken by a bank or brokerage that stops some transactions from happening in the account. Normally, any open transactions will be canceled, and checks presented on a frozen account will not be accepted. But, the account holder isn’t barred from depositing money into the account.
Understanding an Account Freeze:
Account freezes can be carried out by either an account holder or a third party, like a government, a regulatory authority, or a court order. Many banks and credit card providers are now offering the ability to freeze an account online. If a card gets lost or stolen, a cardholder can quickly “freeze” the account.
A government or regulatory authority may decide to freeze an account because of suspicious activity, suspected criminal activity, civil actions, or liens filed against the account. In addition, a bank or brokerage account may be restricted when the account holder passes away. As soon as the right documentation is presented, a new account will be opened in the beneficiary’s name with access to the assets.
What Does an Account Freeze Mean for You?
As stated above, a frozen account means you won’t be able to access your money until the situation is sorted out. With a freeze on your account, you can’t remove any money, and scheduled payment won’t be successful. And because these payments will bounce, you’ll probably attract a non-sufficient funds (NSF) charge. If you have funds in your account, this will reduce your balance.
If not, you’ll dip into a negative balance, resulting in an overdraft. In this case, you’ll have to pay extra fees and interest to cover the temporary loss. In addition, when a creditor seeks judgment against you, your credit report will be affected. In most cases, the judgment will remain on your credit file for seven years for unpaid debts.
If the bank suspects you’ve been using the account for illicit business, it could shut it completely. This means you’ll be left with no money. You won’t also have the means to store your money. Furthermore, there is a good chance you won’t be able to conduct business with that bank moving forward, and you’ll have to look for another bank. However, that is just one outcome. If the bank reports your account activities to the authorities, you could be slapped with fines or end up being prosecuted.
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Why Would a Bank Freeze your Account?
Did your bank freeze your account? If yes, here are some common reasons why your bank account was frozen:
Suspicious or Illegal Activity:
After the tragic 9/11 disaster, banking regulations were reviewed and tightened to stop terrorists and criminals from using financial institutions as a tool to fund their enterprises. Banks have the right, at their discretion to suspend your account if they believe that you are engaged in an illicit activity like money laundering. They are often wary when a large amount of money is deposited in the account and then relocated to appear as if it came from a legit source. Such transaction behaviour is being well examined.
Below are some activities that may appear suspicious and could result in banks freezing your account:
Massive deposits and withdrawals from an undisclosed source:
For instance, when you receive a huge sum of money from an inheritance and you fail to tell your bank account manager.
Wrong or misleading information in your customer record:
Ensure that you give accurate personal details when you open your account. If you modify your address, surname, or phone number, you should contact the bank and update your information ASAP. Failing to answer the phone or a disconnected phone, in general, is also a red flag.
Large transfers of money, especially cross-border ones:
Banks often keep an eye out for large money transfers, especially rounded numbers such as 5,000, 10,000, or 20,000. If you initiate such transfers or with similar amounts of 4,999, 9,999, or 19,999, this is certainly a red flag.
Regular cash transactions:
Regular cash deposits in your account can also be considered a red flag. We are aware that cash is king, but criminals like it too.
Duplicated accounts in the same name or recurring transfers:
When you transfer money between your accounts often, this is also tagged suspicious.
Deposits from suspicious sources:
If you receive money from an individual or a business flagged for suspicious activity, it can kick start an investigation to determine the funding source.
An immediate rise in transactional activity:
If your normal bank activity of deposits and withdrawals rises, the bank may also take action.
Buying high-risk items like firearms, precious metals, or paintings by popular artists can be suspicious for money laundering.
Your account can also be frozen even if there are zero suspicious activities. Below are a few examples:
Outstanding Debts to Creditors:
If you have a bank account and owe funds to the same bank, they can automatically remove the debt. This will settle the outstanding loans without filing a lawsuit or court decision against you.
Company Liquidation:
If your company is in liquidation, and if the business is feasible, the bank account may be frozen. This often occurs after receiving notice of the petition to stop possible liability accrued during bankruptcy.
Inadequate Funds in Your Account:
Accounts can also be suspended due to inadequate funds to initiate payments. Banks can also restrict or block your card. And when that happens, you need to either transfer funds, if available, into that account or plan to repay the money.
Victim of a Fraud:
When a security breach happens, the freeze on your account will help protect its funds. If your bank discovers purchases that don’t match your usual pattern, it may assume that your account was hacked or your wallet was stolen. The bank could place a temporary hold on your account to protect your money.
You might discover the hold while standing at the checkout in a cashier or trying to initiate purchases online. A security freeze can be unblocked by calling your bank to verify you are the one initiating the transaction.
How Long Can a Bank Freeze an Account For?
If your account is frozen, how long are you meant to wait for it to be unfrozen?
You see, there is no general timeline that banks have before unfreezing an account. Generally, the freeze can stay for 7-10 days for basic cases or misunderstandings. However, for more complex situations, the bank may ask for detailed information and take around 30 days or more to unfreeze or shut the account completely.
How do you Freeze a Bank Account?
What do you do if you discover that your account has been hacked? First, you may want to freeze it. You can freeze your bank account to stop debit transactions from clearing by accessing your online banking platform or mobile banking app (assuming your bank provides the option). Alternatively, you can reach out to customer service and ask for an account freeze. Here are some other effective ways to unfreeze a frozen account.
What to Do to Unfreeze Your Bank Account?
If you feel that your bank account has been wrongfully frozen, here are some steps you can take to unfreeze it:
- Ask your bank why your account has been frozen: If you still have access to online banking, go through your current transactions, highlight anything that might be strange, and note down where they come from.
- Call your bank and ask to speak to your bank’s fraud team, as they are more likely to have the authority to take a good look at your account. Ask if a specific transaction has caused the issue and see if they can explain why. If the bank refuses to help, then table a formal complaint there and then.
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What Are Your Rights When Your Account Is Frozen by the Bank?
Now, let’s talk about your rights. If you aren’t a money launderer, a terrorist financier, or a fraudster, you have the right to receive enough information regarding the reason behind your account freeze.
As soon as you have received a notification that your account has been frozen, be it from a creditor company or the bank. Either way, ensure you call your bank fast, or go to the closest bank branch to consult about the next steps.
At this point, when you begin the conversation with your bank, keep in mind two keywords: Cooperation and Transparency. Always be transparent and cooperative. You know your account activity is legit, so be transparent. In addition, cooperate by offering enough proof of the bank activity.
Remember that just as you need to be honest and cooperative, on the flip side, you have the right to receive information on the state of your bank account. If you can prove that there is no reason to freeze your account, the bank will definitely unfreeze your account by giving you full access to the account again.
Which Funds Can Be Frozen?
Any personal funds in an account must be frozen as soon as a bank is presented with proper court documents. Your wages can be frozen, same with savings. Money deposited from trusts or court awards can be frozen. Dividends from investments can also be frozen. The only funds that boast automatic protections are government benefits.
Directly deposited social security benefits gotten in the two months before a judgment cannot be frozen or garnished. It is crucial to understand that automatic protection only applies to benefits gotten as direct deposits. Social Security benefits that were cashed and later deposited or were moved to a different account can still be left out but are likely to be frozen with the account until the freeze is challenged in court.
An important nuance to the Social Security exemption is the protection’s scope: the value of Social Security benefits is protected, but not specifically the funds themselves. So if you received direct deposits of $2500 in Social Security benefits over two months, the first $2500 in the receiving account would be automatically protected from being frozen, regardless of where the actual funds came from.
Funds held in joint accounts can also be frozen. If your money is held in joint accounts with a spouse or close family member, their debt can get your money frozen, and vice versa.
