When depositing money into a bank account, one expects to have convenient and easy access to the funds. There are times, however, when this is not the case. In certain situations, banks may restrict customers from removing funds from their accounts. These includes issues over account ownership, hold policies, overdrawn accounts, credit delinquencies and legal concerns.
Restrictions Due to Account Ownership
In order to remove funds from a bank account, a person must have legal ownership over the account. Sole, joint or co-ownership must be established before one is able to remove money from an account.
For example, if a person is listed as an account beneficiary, he is unable to withdraw funds until each of the account owners is proven to be deceased. Further, if someone is removed as an account owner, he would no longer have the authority to withdraw funds, make debit card transactions or sign checks.
Effects of Reg. CC Holds
There are times when even account owners are restricted from withdrawing money. Banks have the legal right to delay the availability of funds deposited into accounts under Regulation CC. Reg. CC is a federal regulation that allows banks protection against losses through the delaying of the availability of funds.
Reg. CC is a very specific guideline that banks use in order to place holds on deposits. Holds can be placed on check deposits for various reasons, and Reg. CC outlines the maximum amount of time access to the funds can be delayed. While banks are not required to place holds on check deposits, Reg. CC allows bank employees the option to do so. It also protects customers by forcing financial institutions to make funds available within a reasonable amount of time.
Issues With Overdrawn Accounts
Banks can also restrict customers from removing money from their accounts when they are overdrawn. If an account has a negative balance, banks apply all deposits toward paying the negative amount. When accounts are overdrawn for an extended period of time, banks can close customers' debit and ATM cards, and eventually close their actual accounts.
Accounts closed in this manner are called "charge offs." Charge offs are sent to collection agencies for recovery and are reported to credit reporting agencies, often affecting the client's credit score.
Holds Due to Credit Delinquencies
Banks can restrict clients' access to checking and savings account funds if they have credit accounts that are past due. If a customer has a deposit account at a financial institution and also has a loan or credit card that has been unpaid at the same institution, the bank can take money from the deposit account to apply toward the outstanding credit balance. Customers in this situation are unable to use the funds they deposit into their checking or savings accounts until the credit account balance is current.
Problems Due to Legal Issues
Additionally, banks can restrict customers from removing money from their accounts when legal issues are involved. Banks are required to comply with court orders and garnishments. Garnishments can occur when money is owed to federal, state, or local governments for taxes or liens, or when a court order is issued for delinquent child support, for example.
When a bank is notified of a garnishment, it has the legal obligation to comply. When the debt is satisfied, however, garnishments can be removed with a subsequent court order stating that the bank can allow unlimited access to the account.
There are many reasons why a bank may restrict its clients from removing money from accounts. If a customer is denied access to his bank account, he should see his financial professional immediately in order to rectify the situation.