Bank would not freeze your account without any reason. Your bank would be held responsible for reporting the detection of any unusual transactions inclusive of usual remittances and money laundering under the RBI guidelines. RBI would decide the steps taken in coordination with the government authorities. In the event, it requires freezing the account, the bank would be asked to freeze your account.
In a few circumstances, the bank would be asked to freeze your account adhering to the order of the court, ACB, income tax, etc. Freezing your account implies no transaction is allowed in your account. You may wonder for how long can a bank restrict your account. Rest assured there is no definite duration for which your account could remain suspended or frozen. The duration for freezing the account would be dependent on the purpose for which it has been frozen.
Reasons for banks to freeze your account
Find below a few essential reasons for the banks to freeze your account.
- Suspicious or illegal activity
Banks encompass the authority and discretion to freeze accounts. However, they could do so if they suspect account holders have been conducting illegal activities. It would be worth mentioning here that after the terrorist attack of 11 September, banking regulations have become relatively strict. It has been made strict for reducing various criminal enterprises to conduct businesses using financial institutions.
Your account could also be frozen by the bank, provided you have written and cashed bad checks. You may think it to be okay to cash a check despite there being no or inadequate money in your account. You might believe it takes a few days for a check to clear. However, the bank does not think that way. Knowing your account not having an adequate amount and writing a check could be determined as an act of fraud. Hence, the bank would be within its power to freeze your account.
- Unpaid debts to the creditors
For your unpaid debts, the creditors could ask the bank to freeze your account and satisfy your obligations. However, the creditor should seek approval from the court of law before asking the banks to take any action against you. They would require seeking a judgment against you and placing it on the application to freeze your account.
Account-holders having loan accounts with the same institution as their bank account, the lender could access your account for paying the defaulted loans without the need to file a case or judgment. On signing for seeking a loan, you would be giving the bank complete access to your account.
- Unpaid debts to the government
Individuals owning student loans or taxes to the government might have their bank accounts frozen. A tax levy issued by the IRS for an unpaid tax could result in the freezing of your account. The account would not be functional until the debt has been fully paid.
The government might consider doing a few things for unpaid student loans inclusive of deducting some amount of your paycheck every month or seizing the tax refund. When you default a loan, the federal loan lender might deduct taxes or wages without seeking judgment from the court of law.
