4 Common Reasons Why Banks Might Investigate Your Account

As a cardholder, you’ve probably heard horror stories about people being crippled by financial crime.

If you find out that your bank account is under investigation, it’s normal to wonder if the worst has happened. In most cases, though, the investigation is likely fueled by debt or suspected illicit activity.

Banks reserve the right to investigate your account and access your personal information when they consider it necessary. While this can feel like a violation of your privacy in some circumstances, the banks are actually required by law to investigate as a way to prevent fraud whenever necessary. If they don’t abide by these rules, they could face consequences in the form of fines or even prosecution.

There are four top reasons why your bank may need to open an investigation. In this post, we’ll explore each scenario and discuss what you can do to move forward.

#1. Suspicious Activity

Suspicious purchases could be triggered by transactions that were initiated from a place you don’t live, or shipped to an address that’s not your home. They might also be purchases that don’t align with your usual shopping pattern. If the bank is investigating your account for any of these situations, it’s likely that they will put a freeze on your account.

This is actually a good practice, as it will prevent criminals from doing further harm. If your account falls victim to fraud, allow the bank to continue their investigation. Under the FDIC, your account is insured for up to $100,000 in the US. As long as you report debit card fraud within 60 days, you won’t be held liable for more than $500.

 If the freeze was put in place on accident, reach out to the bank as soon as possible. You will be able to resolve the issue with a phone call to clear up any confusion, end the inquiry, and get your account back.

#2. Debt

Owing money to a creditor, like a mortgage debt, or a car or student loan, could lead the bank to freeze some (or even all) of the money in your account. Other common situations include legal judgements, child support, and back taxes. If you’re on a joint account, you might also find yourself getting punished if debts are owed by the person with whom you share an account.

Unfortunately, if you owe the debt in question, your best option is to pay or try to renegotiate the debt. Your first course of action should be to find out who the creditor is, and then to seek legal advice and credit counseling.

#3. Chargeback Abuse

Even the most well-intentioned customers can commit “friendly fraud” by accident if they don’t understand the difference between a traditional return and a bank-issued refund. A chargeback is initiated when a cardholder disputes a transaction, claiming it resulted from fraud or abuse. The funds are then clawed back from the merchant and returned to you.

If you fall into a habit of abusing the chargeback process, you could get in trouble with the bank. They can choose to close your account, which will in turn negatively impact your credit score.

Chargebacks should only ever be used as a last resort and all efforts should be made to resolve the issue with the merchant first.

#4. The Bank Suspects Illicit Activity

As we previously alluded to, banks are required by the USA Patriot Act to report suspicious activity that might suggest activity like money laundering or the funding of terrorism. If they don’t act, they could be held liable for not conducting their due diligence in preventing these acts of fraud.

Activities like withdrawals or transfers of large amounts of money, especially to overseas or unknown parties, are an immediate red flag. If your customer record contains false information, this could also trigger an investigation.

If you’re wrongly suspected of criminal activity, it’s best to clear up the situation with the bank and law enforcement as soon as possible. The bank will be able to provide information about the investigation and advise you as to whether it’s necessary to contact authorities. If any charges are filed, contact a legal professional right away.

Now What?

You know that your account is under investigation, and now you know why. What happens next?

Fortunately, for many cardholders these cases are more isolated. As long as you’re not implicated in any criminal activity, following the guidance listed above should resolve the problem.  It’s always best to address the issue immediately, avoid chargeback abuse, and follow necessary protocol.