We have a consumer account that has repeatedly been overdrawn. The customer does not seem interested in covering the overdraft. What notice must we provide to close this account? Our account disclosures do not specify a timeframe for closing an account.

In general, we recommend providing at least thirty days’ notice before closing an account if neither your account disclosures nor account agreement specifies a timeframe to provide notice before closing an account. Given the risk of further overdrafts in this situation, your bank may wish to stem its losses by freezing the account until the thirty-day period has passed.

We are not aware of any laws or court decisions that require a specific notice period before closing an account. In the few cases in Illinois involving claims against a bank for unilaterally closing an account, the courts simply upheld the bank’s right to close the account after tendering the account balance to the customer. Courts in other states generally have held that banks must provide customers with “a reasonable opportunity” to protect their interests before their account is closed, consistent with the UCC’s general requirement of good faith and fair dealing.

Also, the Federal Reserve Board requires thirty days’ notice before closing an account that is receiving federal benefit payments. The Illinois Consumer Deposit Account Act also requires thirty days’ notice when a bank is invalidating a routing number on a consumer deposit account. Additionally, in other contexts under the Uniform Commercial Code (UCC), Illinois courts have found that thirty days’ written notice is reasonable (and a Wisconsin court has found that a period as short as fourteen days is “not manifestly unreasonable”).

For resources related to our guidance, please see:

Chicago Marine & Fire Ins. Co. v. Stanford, 28 Ill. 168, 173 (Ill. S. Ct. 1862) (“If the banker finds the depositor a troublesome customer, so that the account is not a desirable one, he may tender the full amount of the deposit, and refuse to receive more, and thus close the account; and after that, if the depositor should refuse to receive the money, his right to draw out the deposit in parcels would be terminated, unless, perhaps, there might be an exception in favor of the bona fide holder of his check.”)

Porter v. Bank of America, 2016 Ill. App. 160317 at *4 (1st Dist. 2016) (“We reject Porter's contention that the bank did not comply with the deposit agreement. The deposit agreement expressly provides that the bank has discretion to pay overdrafts and to close accounts. . . . The deposit agreement further states, in part: ‘You or we may close your checking or savings account at any time without advance notice, except that we may require you to give us seven days advance notice when you intend to close your savings or interest bearing checking account by withdrawing your funds.’ Based on the foregoing language and additional provisions in the deposit agreement, the bank’s actions [closing the account] do not constitute a breach of the agreement. It is axiomatic that a party cannot breach a contract by complying with its terms.”)

Kiley v. First Nat’l Bank, 102 Md.App. 217 (Md. Ct. App. 1994) (“The Kileys contend that the Bank’s notice to close was legally insufficient. The law is well settled that a bank must give reasonable notice to a customer of its intent to terminate a bank account. . . . This means that a bank must give enough notice to allow a customer to protect his or her credit by making other banking arrangements. . . . We observe that the Bank clearly did not furnish much notice to the Kileys to allow them to protect their credit.”)

C-K Enters., Inc. v. Depositors Trust Co., 438 A.2d 262, 265 (Me. 1981) (The required reasonable notice to close a bank account “is such notice as to allow a customer a reasonable opportunity to protect his or her credit.”)

C-K Enters., Inc. v. Depositors Trust Co., 438 A.2d 262, 265–266 (Me. 1981) (“[T]he testimony of the bank manager, Mr. Rioux, concerning his actions in closing the accounts, raises a question for the jury as to whether his behavior was malicious or in reckless disregard of plaintiff's rights, providing a basis for punitive damages. Rioux testified that he decided to close the account on Wednesday but made no effort to contact plaintiff before actually closing it on Friday. He further testified that although he closed the account without knowing what procedures he was supposed to follow, he did know that there were probably outstanding checks that would bounce and that this would cause plaintiff embarrassment.”)

UCC, 810 ILCS 5/4-103(a) (“The effect of the provisions of this Article may be varied by agreement, but the parties to the agreement cannot disclaim a bank’s responsibility for its lack of good faith or failure to exercise ordinary care . . . .”)

UCC, 810 ILCS 5/4-407 (“If a payor bank has paid an item . . . after an account has been closed . . . . to prevent unjust enrichment and only to the extent necessary to prevent loss to the bank by reason of its payment of the item, the payor bank is subrogated to the rights: (1) of any holder in due course on the item against the drawer or maker; (2) of the payee or any other holder of the item against the drawer or maker either on the item or under the transaction out of which the item arose; and (3) of the drawer or maker against the payee or any other holder of the item with respect to the transaction out of which the item arose.”)

UCC, 810 ILCS 5/4-404 (“A bank is under no obligation to a customer having a checking account to pay a check, other than a certified check, which is presented more than 6 months after its date, but it may charge a customer’s account for a payment made thereafter in good faith.”)

U.S. Treasury, Guide to Federal ACH Payments (the Green Book), Chapter 1 (January 2016 Revision) (“Financial institutions may close an account to which benefit payments are currently being sent thereby revoking the enrollment authorization by providing a 30‐day written notice to the recipient prior to closing the account. In cases involving fraud, accounts may be closed immediately. . . .”)

Consumer Deposit Account Act, 205 ILCS 605/3.5 (“At least 30 days before a financial institution invalidates a routing number on a consumer deposit account, whether as a result of a merger, purchase and acquisition, or other transaction, the institution shall send a notice to each affected consumer deposit account holder advising the holder of the invalidation and the effect it will have on the account. The notice shall include, but shall not be limited to, the following information: the date on which the routing number will no longer be effective; procedures necessary to ensure that electronic funds transfers, including direct deposits, are processed correctly; and information on ordering new checks, debit cards, and similar items.”)

Napleton v. Great Lakes Bank, N.A., 945 N.E.2d 111, 118–19 (1st Dist. 2011) (“Here, the parties agreed pursuant to the terms of the Account Agreement that plaintiff was required to timely discover any unauthorized transactions and notify the bank in order to preserve his claim. . . . because plaintiff failed to notify the bank of the forgery within 30 days, the trial court did not err in finding that plaintiff had no claim against defendant.”)

Borowski v. Firstar Bank Milwaukee, N.A., 579 N.W.2d 247 (Wis. Ct. App. 1998) (“The only reported case that we were able to find that addresses the precise question at issue here . . . approved a reduction from one year to fourteen days without regard to whether or not the bank was negligent. . . . Based on the foregoing, we conclude that the fourteen-day period is not ‘manifestly unreasonable’ . . . .”)