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Account Closing & Debit Card Transactions

Answered by: 
John Burnett

Question: 
I have a question regarding closing an account. Due to increased debit card usage, we realize that we could incur loss from a closed account if a debit card transaction is presented for payment after the account has closed. It is our understanding that we are required to pay the incoming transaction even if the account is closed. Is this correct? Also, what is the industry standard regarding a waiting period to close an account after receiving the request from the account owner, in order to cancel the debit card and allow time for all debit card transactions to clear before releasing the remaining balance in the account? Please advise me on what is an acceptable practice and of any compliance issues.
Answer: 

You are correct that a pending debit card transactions could post after closing, and you would have to honor it if it had been properly pre-authorized (signature-based debit).

In many systems, the pre-authorization debit will have placed a visible hold against the cardholder's funds already, and you should allow for those holds when determining the close-out balance.

Otherwise, if you know your customer pretty well and this is a friendly parting of company, you could ask the customer outright if there are any pending debits.

Finally, I'm not aware of any standard delay period to allow for these things to clear. To be safest, you could ask for the card to be surrendered and agree to cut a check for the balance in three business days.

First published on BankersOnline.com 8/05/02

First published on 08/05/2002

Filed under: 
Compliance
Operations
Filed under compliance as: 
IT
Know Your Customer
Filed under operations as: 
IT
Know Your Customer

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