I've been reading a lot of posts here and on our sister website, BankingQuestions.com, about banks that have reopened accounts that have been formally closed, in order to post ACH debits or credits, checks or remotely created checks, dated debit card purchases, etc.

My question is, if an account is actually closed by the customer or the bank, and brought to a zero balance so that it can purge off the bank's systems, would your bank reopen it without the customer's agreement, and for what reasons? Put another way, on what authority would your bank base its unilateral reopening of an account?

This question has come up at my bank. It is something we have always done. However, Compliance is not happy about it. Checking accounts can be at a zero balance for 7 days before it is closed. Savings is 30 days. Branch personnel will reopen after they have "flashed" closed and we force it open. No new documents are prepared. We don't really have any documented authority. We need to change this process but I can just hear the moans from the platform! I would like to hear what other banks are doing and what their rules are.

We consider the closure of the account to be a termination of the contract. Also, if the customer has no other accounts with the bank, it is a break in relationship. Reopening the account will require new CIP and new signature cards.
Forcing the account open will violate our BSA procedures, and we will be operating without a signed contract.

Such a bad practice. I pity the bank that tries to show an account signature card with a "closed" stamp lined through and reopened to a judge.

Personally, don't look to me for recourse as a joint owner of a "reopened" account. That ship sailed the day you closed the account.

Aside from the concerns rightfully expressed, didn't I read on one of the threads that a 'reopened' closed account was something that an Examiner loved to see because full CIP is required but rarely done?

I think this is another "we've always done it" that old school bankers see nothing wrong with, and the compliance people are railing against...and the compliance people are slowly winning the battle

I think that is absolutely correct. Unfortunately, it sometimes takes the examiners formally citing the CIP and other issues before Compliance is heard. I've gotten over that through the years, though. My job is to identify the risks, raise the caution flag and stand ready to offer advice and counsel when the business unit or management is ready to listen.

For the record, I firmly believe that a closed account is closed and that a bank cannot re-open it without authority from the customer. It's a contract, after all, and once the account is closed, the contract is no longer valid. To open an account, you need a new contract.

If your bank has contract provisions allowing the opening (or reopening) of accounts without a new account contract (assuming such a contract would stand up in your state), you might legally get away with re-opening, but you would still have to apply CIP if the customer didn't have an open account at the time.

My purpose in starting the thread is to raise awareness of the issue.

If I remember correctly, the original legal opinion supporting a bank's right to "re-open" a closed account for its own convenience came from a 20 year old CSR who said, "It's easier..."

It was confirmed 15 years later by the same employee who said, "We've always done it that way."

Ken - I like that. I may have to use it sometime.

John - this exact issue just came up at our bank - "it is the way we've always done it". I know if I recommend we no longer re-open accounts when we receive an ACH, I'll get push-back asking what law says we cannot do this. The majority of the time, the bank has closed the account and allowed it to re-open so we can exercise the right of set-off. What are your thoughts in regard to that?

My thoughts? An account cannot be reopened unilaterally. Although the former customer may owe you money for a closed, overdrawn account, the contract ended when you charged it off and told your customer the account was closed.

The correct way to handle it is to return the ACH credit (unless it's a government benefit payment and less than 30 days has passed since you informed the customer the account was closing) as "account closed."