If you've had your bank account closed due to insufficient funds, you're not alone. The Federal Deposit Insurance Corporation reported that between 2000 and 2005, financial institutions closed around 30 million checking accounts due to bad banking behavior. To avoid closures due to insufficient funds, closely monitor all of your bank activity and make use of your check ledger to ensure you don't overdraw.
Bank Closure Rules
Unfortunately, consumers don't have much protection when it comes to banks closing accounts. Federal banking regulation doesn't specifically address the closure of checking accounts. According to the U.S. Department of the Treasury, national banks can close checking accounts for any reason. Your bank can even legally close your account for insufficient funds, inactivity or low usage, depending on the original account agreement when you opened your account.
Typical Bank Procedures
Banks don't generally close accounts that are currently overdrawn for sufficient funds, namely because they don't want to foot the bill. Overdrawing once or twice won't usually get you the boot, but a bank may close your account if they see a pattern of bad behavior. They may also report the account closure and irresponsible behavior to a consumer reporting service like ChexSystems. If you do owe your bank money and refuse to pay up, they may also send your account to collections, which can damage your individual credit rating.
If you've had your bank account closed suddenly, you may have trouble securing a new one. Just like a credit card company checks your credit before issuing you a card, banks check up on your past banking history. If they find a report of a previous bank closure from a consumer reporting service, it could prevent you from opening a new account.
There are steps you can take after a bank account closure to make life easier. Contact a consumer reporting service company to obtain a copy of any reports on you, if they exist. Review the reports and dispute anything that's incorrect. Work with your previous bank to reinstate your account, if at all possible. If you're still having trouble, you can seek out "second chance" bank accounts designed for individuals who've had banking troubles in the past.
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