Bank account closure and overdraft repayment demand

Legal position on account closure:
In England and Wales, banks and building societies are generally entitled to close a customer's current account, provided they comply with the terms of the account agreement and relevant regulations. Under the Payment Services Regulations 2017, a bank must typically give at least two months' notice before closing a personal current account, unless there are exceptional circumstances such as suspected fraud, money laundering, breach of terms, or if the account has been inactive. For business accounts, the notice period may differ based on the contract, but similar principles apply.

However, the bank must act reasonably and fairly, in line with the Financial Conduct Authority's (FCA) principles, including the Consumer Duty introduced in 2023, which requires firms to deliver good outcomes for retail customers. Closure cannot be discriminatory under the Equality Act 2010, and if you are a vulnerable customer (for example, due to health or financial difficulties), additional protections may apply. If the closure causes unfair detriment, you could challenge it through the bank's complaints process or the Financial Ombudsman Service (FOS).

Legal position on demanding repayment of an overdraft:
Overdrafts are typically repayable on demand, meaning a bank can legally require immediate repayment unless the account terms specify otherwise (for instance, if it is a fixed-term arranged overdraft). This stems from common law principles and the terms of most banking contracts. However, the bank must exercise this right reasonably and in accordance with FCA rules on treating customers fairly.

If the overdraft is unauthorised, the bank has stronger grounds to demand repayment without notice. For authorised overdrafts, they should provide reasonable notice or an opportunity to repay in instalments, especially if sudden demand would cause hardship. Under the Consumer Credit Act 1974 (as amended), certain overdrafts are regulated credit agreements, requiring the bank to follow specific procedures, such as issuing a default notice before enforcement action. Failure to do so could render any enforcement invalid.

Practical considerations:
Whether a bank can proceed immediately often depends on the specifics of your situation, such as the type of account, the reason for closure or demand, any outstanding debts, and your personal circumstances. Without details like the bank's stated reasons or your contract terms, it is difficult to advise precisely. Banks rarely close accounts or demand repayment arbitrarily, as this could lead to regulatory scrutiny.

If you face this issue, consider the following steps in order:

1. Review your account terms and any correspondence from the bank to understand their basis for action.

2. Contact the bank promptly to discuss and request an explanation or extension, providing evidence of any hardship if applicable.

3. If dissatisfied, make a formal written complaint to the bank, outlining why you believe the action is unfair.

4. If unresolved after eight weeks, escalate to the Financial Ombudsman Service, which is free and can investigate impartially.

5. Only consider court action (such as an injunction to prevent closure) as a last resort, given the costs, time, and uncertainty involved.

In most cases, early dialogue with the bank is the most effective way to resolve matters without escalation. If this relates to a jurisdiction outside England and Wales, I recommend consulting our worldwide lawyer, Atlas, for tailored advice.