...Banks Have Limited Authority to Open, Close and Access Accounts

When you want to open a checking account, get a credit card or sign up for some other product or service from a bank, you may be asked to fill out an application and sign papers that essentially are contracts between you and the financial institution. These documents recognize that you have the right to be treated fairly under state and federal laws, but they also explain that the bank has certain rights to open, close and, under limited circumstances, to access accounts. Because consumers often misunderstand what banking institutions may or may not do, we offer the following examples.

A bank may reject your application for a checking or savings account. When you apply to open an account, the bank may obtain a copy of your credit report. If your credit report indicates you have a history of mishandling an account—perhaps you've bounced a lot of checks or done something to cause another financial institution to close one of your accounts (see next paragraph)—the bank may refuse to open an account for you. Note: If the bank declines your application based on information in a credit report, you must be told so and be given a chance to correct information in your report that may be inaccurate.

Your bank may close your deposit account and give you your money back. Examples of when that could happen: You bounce a certain number of checks. You refuse to pay the fees for bouncing checks (or some other fees, for that matter). Your account balance falls below a certain amount. Or, you don't make any deposits or withdrawals for many years and the bank's efforts to locate you prove unsuccessful, in which case the bank typically will transfer funds from these "dormant" accounts to the state government's unclaimed property office.

Your credit card issuer may cancel your account. "Your bank may have the right to close your charge account if you exceed your credit limit or fail to pay certain fees, such as late-payment penalties," says Ann Johnson, an FDIC consumer law attorney in Washington. "The bank also may cancel your credit card account if the checks you send in for payment are returned because of insufficient funds."

Your bank may deduct money from your account under certain circumstances. Suppose you have an auto loan with the same bank where you have a checking account. If you don't make a monthly loan payment, the bank may be able to deduct the payment from your deposit account. The bank's right to divert money to cover a debt is governed by state law, which can vary significantly from state to state. If your bank has the right to take funds to cover money you owe the institution, this right is probably noted in your loan contract. Some state laws require the bank to give you advance notice before taking the loan payment; others don't.

There also are times when a court will order a bank to freeze a customer's account so that funds can be used to pay another creditor or for child-support or back taxes. In these situations, the customer will be notified before any money is transferred out of the bank, so that he or she has a chance to contest the matter in court.

A court also can order your bank to open your safe deposit box. Robert Patrick, another FDIC consumer law attorney in Washington, says this often occurs if the person renting the box dies and the executor of the estate doesn't have access to the box. Other examples, according to Patrick: If law enforcement authorities convince a judge that the box contains evidence of a crime. If someone claiming you owe money gets a court order to see whether the box contains anything of value. ("Of course, you'd first have the opportunity to show the contents of the box voluntarily," adds Patrick.) Finally, the bank may need to open the box to turn unclaimed property over to the state, in much the same way that dormant savings and checking accounts are handled.

...A Bank By Any Other Name May Still Be the Same Bank

We've previously cautioned readers that some banks and thrifts operate branches and Internet sites under a different "trade" name than the company's "legal" name. The FDIC is especially concerned that depositors who are confused about the true identity of a particular institution could inadvertently exceed the $100,000 insurance limit. Suppose you have $70,000 in a savings account at Main Street Bank and, after surfing the Web, you deposit an additional $50,000 at Internet Bank, which you didn't realize was a division of Main Street Bank. "If Main Street Bank fails, so does Internet Bank because they are really the same bank," says Marc Goldstrom, an FDIC attorney in Washington. "Your accounts would be combined and insured up to $100,000, so you could lose $20,000."

Because the FDIC continues to get inquiries from consumers about banks or Web sites with unfamiliar names, we offer these suggestions:

First, the more unusual the name, the more likely it's worth your time to check out the bank before conducting business. "A snappy or high-tech sounding name that's not common for a bank is a tip-off that this might be a division of a traditional bank or not even a bank at all," says Cynthia Bonnette, a bank technology specialist with the FDIC in Washington. You may call toll-free 800-934-3342 or write the FDIC's Division of Compliance and Consumer Affairs to confirm that a particular bank or savings institution is FDIC-insured. The FDIC also maintains an online database of insured banking institutions at Is My Bank Insured? However, your search must use the legal name of the bank because the system does not include trade names of branches or Internet sites.

Because the FDIC and other federal regulators have advised banks to clearly identify their legal names in advertisements, you also should be able to find the official name of a bank on its Internet site. The wording might say something like "Internet Bank is a division of Main Street Bank" or "Internet Bank is a service of Main Street Bank." Also, look for a link from the home page to a section (often called "about us") with facts about the history of the institution, any ties to other financial institutions, and perhaps details about its FDIC insurance coverage.