Banking giants are paying out thousands of pounds in compensation after closing their customers’ accounts in error, an investigation by The Sun has found.

We found a number of cases where banks closed their customers’ accounts in error, but this was only revealed after intervention by the Financial Ombudsman Service (FOS).

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Known as “debanking,” banks can close an individual or business’s account if they believe it poses a financial, legal, regulatory or reputational risk.

This can sometimes prevent customers from accessing their money for days or even weeks if the bank freezes the account or sends them a refund by check.

But the bigger problem is that banks have no obligation to tell you why they closed your account, leaving many customers wondering what they did wrong.

The number of complaints received by the OFS regarding debanking has increased by 69% since the 2020/21 financial year, from 2,281 to 3,858 in 2023/24 – although not all of them were linked to bank errors. banks.

But it has emerged that some banks closed customer accounts in error, but refused to disclose this to the customer until the FOS intervened.

Sarah Coles, head of personal finance at Hargreaves Lansdown, told The Sun the findings could be “the tip of the iceberg” and banks need to be quicker to put things right if they make mistakes.

“There are many examples of Ombudsman errors leading to accounts being closed,” she said.

“This can range from an error of judgment, to human error, to a systems failure that results in accounts being incorrectly updated.

“Given that most people give up fighting long before involving the Ombudsman, this could be just the tip of the iceberg.

“People make mistakes and we can’t expect them to be perfect, but we can expect banks to put processes in place to check those decisions and correct things as quickly as possible when the things go wrong.”

THE CASES

The Sun combed through dozens of entries on the FOS website and found a number of decisions alleging bank deletion errors over the past seven months, including from Barclays and NatWest.

In all these cases, the FOS said the bank should pay unhappy customers compensation for the inconvenience and distress caused – sometimes up to thousands of pounds.

In several of these cases, the accounts were closed following what is called KYC (Know Your Customer). goodbyewhere the bank can request more information from a customer.

If a customer does not return this information within a defined time frame deadlinethe bank could react by closing its account.

But some of these reviews have resulted in accounts being closed in error.

In one case we uncovered, long-term NatWest customers, known only as Mr and Mrs G, complained to the FOS about their accounts being closed without explanation, causing them “discomfort.” inconveniences and worries.

After initially refusing to provide reasons, NatWest later admitted closing its accounts in error following intervention by the FOS.

The FOS determined that NatWest had treated them unfairly, requiring the bank to pay £350 and issue a letter of apology.

A Natwest spokesperson said: “We are extremely sorry for the mistake we made in closing this account and have apologized and paid compensation to our customer. It is extremely rare for a customer’s account to be closed incorrectly.

In another case, a customer known as “S” complained that Barclays had wrongly closed its Business Premium account on September 5, 2023 during a KYC review.

Barclays admitted the error, reopened the account after four weeks and offered compensation of £500 for the inconvenience caused, but refused to cover the significant financial losses claimed by S.

The FOS estimated that Barclays would have to pay £3,850 for loss of profit, £500 for inconvenience and 8% interest on the account balance.

Both parties partially accepted this decision.

A Barclays spokesperson said of the cases: “We are unable to comment on the details of these specific cases without the consent of our customers.

“However, we respect the decisions made by the Financial Ombudsman Service and are sorry for any occasions where we have failed to provide the usual high levels of service that our customers can expect to receive.”

What is “unbanking” and why might my account be closed?

Debanking is the closing of your account against your will.

Banks should generally give customers 30 days to make alternative banking arrangements before canceling their account, but in some urgent cases you may not receive any warning.

Perhaps one of the best-known recent cases of debanking is that where Coutts Private Bank has closed Nigel Farage’s accountthe former leader of the UK Independence Party, in June 2023.

Lenders can suspend accounts if they detect “suspicious activity,” such as sending or receiving large amounts of unexplained funds. money or transactions do not fit the user’s typical spending pattern.

If a bank suspects that a customer has been the victim of fraud – where large sums of money are sent – ​​it will also close the account.

Which? Money editor Jenny Ross says: “In certain circumstances, banks are allowed to close accounts without notice and without providing a reason.

“This includes alleged fraudulent use of the account.”

Your bank could put a immediate freezing of your account if he notices significant incoming or outgoing expenditures or transfers that appear suspicious.

This can prevent money from leaving your account to protect you if you are worried about falling victim to fraudsters.

Likewise, if a large sum of money is received, he may suspect that you have been caught in a trap. money-bleaching operation.

Fraudsters can manipulate customers into becoming “money mules.”

This means they could help scammers move money earned through crime without even knowing it.

Sometimes victims believe they are helping a friend or being paid for work that appears legitimate.

After temporarily freezing your account, the bank will investigate further.

If they are still not satisfied after that, they may close your account permanently.

Your bank might decide to drop you as a customer simply because you don’t comply with their terms and conditions.

For example, when you signed up, you may have agreed to pay a certain amount each month or set up several samples.

In this type of situation, the bank will need to give you at least 30 days’ notice so that you can transfer your money elsewhere.

In July last year, the Treasury confirmed that it was studying the rules surrounding close bank accounts, such as increasing the period three months instead of 30 days.

But the government has not yet revealed its intention to implement these proposals. The Sun has requested an update where possible.

What can you do if your bank account is closed

Which? says those who believe their bank account has been unfairly closed should try to make alternative arrangements for their payments to avoid fees or charges.

They must then file a complaint with their bank and make an online data request to Cifas to verify a marker, which they can then dispute.

If this fails, customers could then attempt to lodge a complaint with the FOS.

Customers who successfully file a claim may not have their account reopened, but they may receive compensation and an apology.

But it is worth bearing in mind that this can be a lengthy process and it may take a long time to see any compensation.

Do you have a money problem to resolve? Contact us by emailing [email protected].

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