What happens when a bank closes your account? The answer is less obvious than it seems for Wells Fargo customers.
When banks close an account, they typically stop receiving deposits at a certain date and, a short while later, stop honoring withdrawals from the account. While other banks like Bank of America or JPMorgan Chase can reopen a closed account, they do so rarely and in very specific situations like an inbound deposit. Both Bank of America and JPMorgan Chase inform customers of this possibility.
And on paper at least, Wells Fargo is no different. But in practice, Wells Fargo employees have told The New York Times that the computer system that manages account closures keeps accounts bound for deactivation open if they have any balance at all — positive or negative. Unlike most banks (and, it should be noted, unlike Wells Fargo’s letters to holders of accounts being closed would have customers believe), employees say the company continues honoring transactions on these officially-closed, factually-open accounts for up to two months after the stated closure date.
Many customers only find out this has happened when contacted by Wells Fargo’s collections department. The employees of the collections department recently grew concerned after taking in an estimated $100,000 in overdraft fees over eight months.
In June, Wells Fargo told roofer Xavier Einaudi that it was closing the 13 accounts associated with his business for “confidential reasons.” Expecting that meant no transactions to those accounts would be honored, he took the money from the accounts and parted with the bank. But Einaudi was wrong — for weeks after the date they set for the accounts’ closure, Wells Fargo continued honoring transactions to some of the accounts. Payments for things like insurance payments or management software subscription fees went to empty accounts.
Each time, a $35 dollar overdraft fee was assessed. Within a month, he owed $1,500 on accounts he presumed were closed.
But because the accounts were closed, Wells Fargo customer service refused to assist Einaudi.
Wells Fargo is no stranger to scandal, from the time employees opened fake accounts without customers’ consent to massively overcharging college students for school-sponsored financial products like debit cards or checking accounts. This isn’t even the first computer-caused catastrophe for Wells Fargo customers — last year, a glitch caused hundreds of Wells Fargo mortgage customers to lose their homes not once, but twice. Despite this history, regulators have gone fairly easy on the megabank.
And on the issue of account closures in particular, Wells Fargo’s history is also fraught. The company regularly punitively closes the accounts of fraud victims without determining if the customer was engaged in any wrongdoing. As fraud victims likely have negative balances when their accounts are closed, they then are subject to continuous overdrafts for months after Wells Fargo has said the account will be deactivated — a terrible financial double-whammy.
A former employee, Matthew Valles, is suing the bank for wrongful termination following his attempt to raise alarm about this problem in 2017, and the way it tends to affect victims of fraud.
(Featured image: Mike Mozart/Creative Commons)
Katelyn Kivel is a contributing editor and senior legal reporter for Grit Post in Kalamazoo, Michigan. Follow her on Twitter @KatelynKivel.