What is de-banking and could it happen to you? - Which? News (2024)

Complaints to the Financial Ombudsman Service (FOS) about account closures, or 'de-banking', have surged by 44% in the past year and more complaints are being upheld, warns Which? Money.

This is according to new data published in a letter sent to the Treasury Committee by Abby Thomas, chief executive of the FOS, sparking concerns that banks are increasingly closing bank accounts unfairly.

The issue has been in the spotlight since the private bank Coutts closed the account of former politician Nigel Farage in June 2023. Here, we explain why accounts are being closed – and what you can do if it happens to you.

What is de-banking?

De-banking refers to the closure of an account.

Banks should generally give you two months' notice if they want to close your account, though this could rise to 90 days under new rules proposed by the government.

The rules are different in cases of suspected fraud – there’s no minimum notice requirement, which could leave you stranded without access to your money.

Financial crime isn't the only reason banks close accounts, though. Other reasons are account inactivity, incomplete information in standard checks, or the bank’s own commercial reasons.

The Treasury Committee said it had been looking closely at the issue of de-banking in relation to its inquiry into whether small and medium-sized businesses have adequate access to financing.

Are more accounts being closed unfairly?

Complaints about de-banking to the FOS leapt from 2,683 in the 2022-23 financial year to 3,858 in 2023-2024.

The vast majority of complaints relate to current accounts: 2,720 of the 3,858 cases in the most recent data set; 300 relate to electronic money accounts (such as Revolut) and only 133 relate to savings accounts.

Business customers are particularly disgruntled – complaints to the FOS spiked by 81% year on year, from 367 in 2022-23 to 666 complaints in 2023-24.

In February, the Committee highlighted that more than 140,000 business accounts had been closed by major banks.

Recent FOS decisions suggest more banks are closing accounts without justification, because a third of complaints in 2023-24 were upheld (meaning investigators or ombudsmen ruled in favour of the complainants), up from around a quarter in each of the previous three years.

Which? has previously revealed that some banks were wrongly closing customer accounts in more than three in 10 disputed cases.

What about accounts being frozen?

The FOS data includes a smaller number of complaints received in relation to ‘restricted account closures’, that is, cases involving financial crime concerns, money laundering concerns or where the complaint involves a politically exposed person.

Since 2020-21, the volume of complaints related to restricted account closures has almost trebled, from 243 to 705.

Banks have legal and regulatory obligations to prevent accounts from being used for criminal purposes such as money laundering. If a bank is suspicious about an account, it must report the account to the National Crime Agency (NCA) and freeze the funds in the account until it gets clearance.

Complaints to FOS about account closures and restrictions

Mandatory fraud reimbursem*nt and account closures

There are concerns that account closures will become more common once banks are legally required to reimburse fraud victims in all but exceptional cases.

A mandatory reimbursem*nt scheme for authorised push payment (APP) fraud will come into force from October 2024 and the payment systems regulator (PSR) has stated that it will gather data to monitor its effectiveness and assess risks.

It said this includes firms restricting customers’ access to accounts and vulnerable customers being ‘de-banked’, or payment firms limiting the services available to some customers.

What can I do if my account is closed?

You can take steps if you think your account has been closed unfairly, though it's uncommon for decisions to be reversed.

The FOS says it would only expect banks to give you less than two months’ notice in exceptional circ*mstances, chiefly suspected fraud or abusive behaviour to bank staff.

Which? has previously investigated the issue of innocent people having their accounts closed with no warning due to suspected fraud, leading to Cifas markers being added to their credit reports.

If you're account is closed, follow these steps:

1. Make alternative 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 find other ways to pay.
2. ComplainComplain 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).
3. Look for Cifas markers It won’t appear on your credit report, so to do this, you must make a data subject access request to Cifas online using two forms of ID.
4. Challenge Cifas 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.
5. Be careful with applications A Cifas marker alleging fraudulent activity will not appear on your credit report or directly affect your credit score, but it will be visible to firms that check the Cifas database when assessing customer applications. What will dent your credit score is if you make applications for financial products and they get rejected, because you weren’t aware of the marker’s existence.
6. Speak to providers If you have a Cifas marker recorded against you and need to open a bank account, speak to your desired provider before applying. Some providers may be more lenient than others or may offer a basic bank account with no overdraft. You could also consider a prepaid account that offers a current account, sort code and debit card.

In our podcast, we met people who had their accounts closed with little or no explanation and through no fault of their own.