Investigation reveals banks have been repeatedly closing accounts unfairly in recent years, with TSB racking drawing particular attention.
Banks have been accused of overusing powers at their disposal to close customer bank accounts.
Data from the Financial Ombudsman Service (FOS), obtained by Which?, shows that banks were found to have unfairly closed customer bank accounts in around a third of cases.
As a result, these customers were left not only unable to access their money, but potentially having a black mark against their name on the Cifas National Fraud Database.
You won’t be told about this black mark, but you’ll feel its impact since it can lead to issues arranging other financial products like mortgages and credit cards.
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The worst banks for closing accounts unfairly
The Which? analysis found that TSB was a particularly troubling performer here.
Not only did it have the highest proportion of complaints against it regarding closed accounts upheld by the FOS ‒ 39% of complaints were upheld ‒ but this was far from a one-off too.
Of the 10 most complained about firms, TSB had the highest proportion of complaints upheld in four of the last five years.
In two years ‒ 2018-19 and 2019-20 ‒ the FOS disagreed with TSB’s actions in more than half of complaints around Cifas markers.
The FOS data found that a third of complaints against HSBC (33%) and almost a third of complaints about Barclays and Metro (both 31%) were upheld.
One notable improver was Royal Bank of Scotland.
In 2021-22 almost half (44%) of complaints around account closure were upheld, but this dropped to a quarter (27%) in 2022-23.
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Banks are being over eager
Banks have the right to close an account swiftly when there are fraud concerns.
That’s clearly a good thing ‒ the process needs to be speedy so that banks can act as soon as they are concerned, rather than have to go through a protracted process which would only increase the chances of the crooks getting away with money they have conned out of their victims.
However, undoubtedly there are concerns that banks may be playing a bit fast and loose with the powers at their discretion.
Which? pointed out that in order to assign a mark to a person’s name on the Cifas database, financial firms have to be able to prove reasonable grounds for believing a fraud was being attempted or had already been committed.
These markers are effective, with Cifas starting they prevented £1.6 billion worth of fraud from taking place last year.
However, dishing out these markers too keenly is having a detrimental impact on those whose accounts are closed unfairly.
After all, if you have a marker against your name, you aren’t explicitly told.
You could then make a host of unsuccessful applications for other financial products, all of which leave a footprint on your credit history and make it even harder to get credit in future.
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Taking it to the FOS
It’s clearly positive that the FOS is taking these complaints seriously, and backing innocent customers when their account is closed unfairly.
However, it’s worth noting that if you successfully do make a claim to the FOS, you don’t tend to get your account reopened.
Instead, you might get an apology and some compensation, but you still have to go through the rigmarole of finding a new bank.
It’s also important to recognise that these cases are likely only the tip of the iceberg.
Not everyone who has their account wrongly closed will actually pursue the matter with the FOS ‒ they may drop the matter once the bank has defended its decision, or not even complain at all.
The FOS is a fantastic service, but the fact that you have to wait eight weeks after complaining initially to the bank will likely put some wronged customers off.
Check out our guide to complaining successfully to the FOS.
More transparency is needed
The heart of this issue ‒ and it’s a big factor in so many areas of strife between customers and financial firms ‒ is a lack of transparency.
Ordinary banking customers have no idea what behaviours might make their bank think they are committing fraud, nor any idea of what they can do to argue their case if they have had their accounts closed.
Meanwhile, banks are not being pushed enough to be open about their own practices here.
That so many innocent account holders are having their services closed is unacceptable and suggests that too many bank staff are able to act now, without worrying about needing to ask questions later.
Fraud is an enormous issue in the UK, and it’s crucial that financial firms are given the tools they need to prevent it from happening in the first place.
But those powers are a privilege, not a right, and they need to demonstrate that they are utilising such tools responsibly. It’s wrong for normal people to pay the price for the itchy trigger fingers of banks over fraud.
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What to do if your bank account is closed
Which? has highlighted the four steps you need to take if you feel your bank has been unfairly closed:
- Make arrangements
Check what’s happened to the money in your account, as banks deal with this differently. Direct debits won’t be paid, so contact receiving firms to make alternative arrangements.
- Make a complaint
Complain in writing to your bank or provider first. If you’re not happy with its response, or it doesn’t respond in eight weeks, you can go to the Financial Ombudsman Service (FOS).
- Look for Cifas markers
Check for a Cifas marker. It won’t appear on your credit report, so to do this, you must make a data subject access request to Cifas online at (cifas.org.uk/dsar) using two forms of ID.
- Challenge markers
Complain to the firm or organisation that recorded it. If this doesn’t work, you can take your complaint to Cifas. If that fails, you can take the matter to the FOS.