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Mistakes reopen ‘zombie’ accounts

By Claes Bell ·
Thursday, February 16, 2012
Posted: 5 pm ET

It's no accident that moving your checking account can be kind of a pain. As I've pointed out on this blog before, banks promote direct deposit and bill pay in part because it makes switching banks much more difficult. Would-be bank switchers have to coordinate moving over their various direct deposits and automatic bill payments to the other account carefully so as not to overdraw their old account or bounce any payments.

Well, add one more thing to the chore list: making absolutely sure all automatic payments and deposits clear before closing your account. Turns out many banks, including JPMorgan Chase and Bank of America, will automatically reopen a closed account should your employer accidentally make a direct deposit into your old account, according to an article by Catherine New that ran late last week in the Huffington Post:

Bank of America will reactivate a closed account if an electronic deposit or credit, like an automatic bill payment, is made. "If we receive something, we may reopen the account to accept the item, and the account may be subject to associated fees," Betty Reiss, a Bank of America spokeswoman, told The Huffington Post. "We remind (customers of that) when they are closing the account."

JPMorgan Chase also will automatically reopen a customer's account after it's closed if the bank receives a deposit. The bank, which recently eliminated its policy to charge customers an account-closing fee, indicates in its fine print that "any closed account may be automatically reopened if we receive a deposit to the account." JPMorgan Chase declined to further comment.

If that happens, it not only forces you to go through the process of shutting down your account all over again, often requiring an in-person visit to the bank, but in some cases, you'll have to settle a fee of anywhere from $25 to $50 for opening and closing an account within 90 days, according to the article.

You can see the potential flurry of fees that could result from this practice. Say an old employer, or even Uncle Sam in the case of a tax refund, realized it owed you $200 and direct deposited that to your account. If you weren't notified, that money would likely be subject to fees for not meeting the minimum balance until you realized it was there, at which time you would take it out and pay another $25-$50 to close your account.

For the banks, this cycle of fees works in a couple of different ways. First, it's free money for them, and second, the next time you're thinking about switching a checking account, you'll probably be a little gun-shy if it ended up costing you a big chunk of fees.

As New notes in her story, this is exactly the kind of practice that would be outlawed by The Freedom and Mobility in Banking Act introduced in Congress last fall by Rep. Brad Miller D-N.C. That bill has little chance of moving anytime before the next Congress, but I wouldn't be surprised if the Consumer Financial Protection Bureau addressed the issue at some point.

What do you think? Should banks be able to automatically reopen a closed account? Should they be able to charge a fee for closing it again?

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Jack H.
March 21, 2012 at 5:32 pm

Good luck getting financial institutions to cough up or forgive any fees or charges that they're not required to do by statute or regulation.

March 15, 2012 at 2:25 pm

Banks should not be able to automatically reopen closed accounts. Whatever happened to the customer being right? Banks have no right to reopen an account that the customer already closed, and if they do reopen the account, then the bank, not the customer, should absorb all associated fees (including the fees of closing the account again).