Consumer Group Concerned as Banks Wrongly Close and Label Accounts as Fraudulent

UK £5, £10, £20, and £50 notes with £1 coins, shown in a file photo dated Jan. 26, 2018. Dominic Lipinski/PA

A consumer group said it’s concerned that some banks are wrongly closing customers’ accounts over fraud suspicion and flagging them in a data sharing system that may prevent them from getting an account elsewhere.

Sam Richardson, deputy editor of Which? Money, said while the consumer group recognises that it’s important banks can close accounts quickly to prevent fraud, they should make “fairer reviews” of the decisions and let customers know how they can challenge the decisions.

While banks are free to close customers’ accounts without giving an explanation, they are normally expected to give at least 30 days of notice unless a customer is threatening or abusive to bank staff or he or she is suspected of committing fraud.

In some account closure cases, banks would go on to mark the customer as a potential fraudster in a National Fraud Database (NFD) maintained by Cifas—a members-based fraud-prevention service—also without telling the customer.

Cifas members, which include banks, insurers, mortgage lenders, and other financial service providers, ultimately make their own decisions on which applications to take on, but a Cifas marker is likely to lead to someone being rejected from getting bank accounts, loans, or insurance for as long as six years, and have their credit ratings damaged further by the rejections.

But in some cases, customers are or are likely wrongfully suspected of fraud, or are unwittingly involved in fraud.

In one of the disputed cases (pdf), Metro Bank closed Mr. H’s account and lodged a marker with Cifas after one of his customers made a complaint of fraud, but the Financial Ombudsman Service (FOS) later found that the customer didn’t receive the item purchased in time because of a delivery delay, not a fraudulent sale.

In another case (pdf), Mr. H’s account was closed by Santander after he had received funds from a fraudulent source. According to Mr. H, he was unwittingly involved after being asked to receive the funds and gave his flatmate the cash. The bank first called him to ask about it, but Mr. H ended the call, believing it was suspicious. The bank then closed his account and lodged a mark with Cifas.

According to figures obtained by Which?, the FOS received a minimum of 1,389 new complaints about the closure of current accounts in the year 2022–23, and upheld a quarter of them, agreeing that the banks had acted unfairly. 

Which? also said there were 375,000 “misuse of facility”’ markers on the Cifas database; 70,000 were added last year.

According to Which?, Cifas said the markers have prevented £1.6 billion worth of fraud in 2022.

Mr. Richardson said it can be “an incredibly stressful experience” to have one’s bank account closed without warning.

“Which? is concerned that some banks are wrongly closing customers’ accounts or handing them Cifas markers which can affect their ability to access other financial products for years,” he said in a statement.

“Which? recognises the importance of banks having the ability to close accounts quickly in the fightback against fraud, but wants to see better communication to customers on what they need to do to challenge decisions, and fairer reviews by banks of these decisions—rather than leaving customers to have to take their claim to the Ombudsman.”

The consumer group advised those who have had their accounts closed to check what’s happened to the money, make a complaint, and go to the FOS if the bank doesn’t respond in eight weeks or doesn’t give a satisfactory response.

Which? also advised them to check for a Cifas marker by making a data subject access request to Cifas, and if there is one, to challenge the marker by complaining to the organisation that recorded it, and escalate to Cifas and FOS if necessary.

A UK Finance spokesperson told Which? that “protecting customers from the risks of fraud is an absolute priority for the banking and finance industry.

“Any decision to close an account is only taken after extensive review and analysis of the activity on the account and each case is dealt with on an individual basis.

“Banks are required to adhere to legal requirements when assessing criminal activity and in every case, the bank must always ensure the customer is treated fairly. UK Finance runs a consumer education campaign, Don’t Be Fooled, which highlights the tell-tale signs and risks of being a money mule.

“We encourage all customers to never share their pins, passwords or passcodes with anyone or allow your bank account to be used by someone unless you know and trust them.”

A spokesperson for Cifas said, “Cifas members file individuals to the national fraud database to share information about accounts which indicate fraudulent conduct.

“Evidence to support markers must be robust and meet our standard of proof, and there are strict rules and guidance around the use of markers in automated systems.

“Out of hundreds of thousands of cases, we acknowledge that occasionally our members will place a marker where a consumer believes this is incorrect.

“There are clear processes in place for individuals to make an appeal and, where necessary, we are able to carry out an independent investigation and have cases removed or amended without the need to involve the Financial Ombudsman.

“This process is clearly explained on our website.”

“All Cifas members provide a Fair Processing Notice when a customer opens a bank account, and this explains how personal data is processed and the consequences of being filed to the database.”