According to data from the Financial Ombudsman Service (FOS), complaints about account closures – or ‘de-banking’ – have surged by 44% in the past year.

Abby Thomas, chief executive of the FOS, highlighted this concerning trend in a letter to the Treasury Committee, raising alarms about the potential unfairness of banks’ actions. 

De-banking refers to the closure of an account by a bank, often leaving customers stranded without access to their funds. While banks are generally required to provide two months’ notice before closing an account, exceptions exist in cases of suspected fraud, where no minimum notice is mandated.

This means that various reasons can prompt a bank to close an account, including suspected fraud, account inactivity, incomplete information, or the bank’s commercial decisions. However, recent data suggests that more accounts are being closed without proper justification, leading to a surge in complaints to the FOS.

Business customers seem to bear the brunt of this trend, with complaints spiking by 81% year-on-year. The Treasury Committee has expressed concern over the issue, particularly in relation to small and medium-sized businesses’ access to financing.

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Looking ahead, there are concerns that account closures could become even more common once banks are required to reimburse fraud victims in all but exceptional cases. The impending mandatory reimbursement scheme for authorised push payment (APP) fraud, set to come into force from October 2024, could exacerbate this issue.

As the debate around de-banking continues, consumers and businesses must remain vigilant and proactive in safeguarding their financial interests and holding banks accountable for their actions. In an era of increasing digital transactions and financial complexities, transparency and fairness are becoming increasingly important.