Your bank must give you written notice, of a reasonable duration, before it can close your account, Neville Melville, the Banking Adjudicator, says.
The office of the Banking Adjudicator has received several complaints about banks which have decided unilaterally to close or freeze accounts.
Typically, the accountholders complain that the banks have frozen their overdrafts or closed their accounts without giving them any warning, resulting in much inconvenience.
Melville says banks, in their defence, argue that their staff have regularly warned the accountholders that their accounts will be closed if they continue to issue cheques without having sufficient funds in their accounts or if they do not keep their overdrafts within the agreed limits. When the accountholders fail to heed these warnings, the bank closes the account.
Melville says it is clear from the law and the Code of Banking Practice that it is not good enough for your bank to simply warn you that it may close your account if you do not comply with certain conditions. Your bank must notify you that it has decided to close your account.
In terms of the law, Melville says, the terms of a contract between you and your bank imply that your bank may not cease to do business with you except after it has given you reasonable notice.
What constitutes reasonable notice will depend on the type of account and the circumstances of each case, but Melville suggests a period of two to four weeks for individual accounts and between one and two months for business accounts.
Although a bank is entitled to demand that you repay an overdraft immediately, this action is different from closing your account, he says.
When closing your account, your bank must bear in mind that you will have to make alternative arrangements for your financial affairs.
Your bank has a duty to advise you that your overdraft facility has been withdrawn to prevent your good name and business reputation from being prejudiced in the event of you issuing cheques after this facility has been withdrawn.
The Code of Banking Practice deals specifically with the closure of accounts and states: "We will not close your account without giving you reasonable notice at the last address provided by you to us. However, we reserve the right to protect our interests should we have to act against you for defaulting on your account or in the event of fraud or suspected fraud on your account."
A further clause in the code says that if your account goes into default, the bank's first step will be to try to contact you to discuss the matter.
Furthermore, the notice to close your account must be in writing, and should he receive complaints of a similar nature in future, Melville says, banks will be asked to provide the adjudicator with proof that such notice was sent to you within a reasonable period before the bank closes your account.
Your bank must also notify you of the date on which it intends closing your account.
However, Melville says your bank has the right to refuse to carry out an instruction to pay a third party if, by making such a payment, your account will exceed the agreed limit. It is acceptable for your bank to freeze debits from your account while your account is over the agreed limit.