1 in 3 Frozen Accounts not Fraudulent

Data from the Financial Ombudsman has shown that 1 in 3 accounts that have been temporarily frozen due to the bank suspecting fraudulent activity are released with no action.

These startling figures show that hundreds of thousands of bank customers could be having access to their bank cut off for up to 42 days without having done anything wrong.

No warning from banks

A huge amount of bank accounts are frozen each year by the bank on suspicion of fraudulent activity — for the financial year 2019/20 the official data shows that 800,000 customers had their bank account or other financial product frozen.

When the accounts are frozen, customers are unable to withdraw any money and their direct debits and standing orders will usually fail. Credit ratings can be impacted too, with the damage taking months to overturn in some cases.

Despite this, banks are not able to give advance warning of an account being frozen, and they are prohibited from explaining in any more detail what they are searching for when an account is frozen, or what triggered it. In fact, under the Proceeds of Crime Act 2002, employees of banks could be prosecuted and potentially jailed for up to 5 years if they did give a customer this information.

Speaking to CompareBanks, one customer who had their account frozen said:

“I lost access to my Starling account for almost a week. It was scary — all my money was tied up and I couldn’t get a straight answer why. I ended up sticking with Starling once it was sorted and I’m glad I did, seeing how much it could easily have happened with another bank, but I think it’s crazy you can’t be warned when you’ve done nothing wrong.”

Recommendations to customers

There is mounting pressure on banks to improve their analysis and algorithms to prevent hundreds of thousands of customers from losing access to their legally-owned money, even if most customers’ accounts are normally restored within a few days.

However the freezing of accounts will not end — banks have the legal right to do so, and it’s important that they do catch those who are laundering money. If the figures from this year correlate with the financial reports of 2019/20 then that means over half a million accounts were being used for fraud, which is a staggering sum.

Customers who are concerned about losing all of their money are advised to have a second bank account with a different bank, to be used in emergencies. Although, customers will not be able to transfer money in or out of their frozen account, so would need to use that secondary account as a backup fund with money already in it.

Customers are also not advised to open a lot of bank accounts with different banks, as this is one of the more obvious red flags of fraud.