I requested the closure, and I was mailed my balance and told that my account was now closed, all dome in writing through the messaging system. Weeks later they paid my rent. Now they want me to repay them, even though I completely closed the account weeks earlier. They are trying to say that since it was auto-pay, that I was responsible for stopping the payment. My problem with this logic is that the account was closed. It should no longer exist. How does one auto-pay from an account that no longer exists? They are saying that the system "force re-opened" my account. IS this a real thing? Can anyone explain how I am responsible for payments made from an account that was closed weeks earlier?
You cannot make a financial gain from this situation
Not only would be immoral, it's just not how it works. Regardless who's fault it was that the payment was made, if they paid your rent, you owe them the money. At best, you might be able to tell them to reclaim the money from your landlord and pay your rent yourself, but there is no free lunch.
If you've already paid your landlord, or if you are no longer paying rent, then the bank should deal with the landlord to recoup the money.
Don't accept a financial loss either
From the situation you describe, the bank does seem to have made a mistake. Do not accept to pay any administrative fees/overdraft charges or other costs that the bank might try to tack on.
This is fairly standard practice. For a period of time after closing an account, it will be automatically re-opened if a transaction posts to it. I asked about this the last time I closed an account, and they said that there's a number of different reasons that they do this:
- The former account owner is typically still interested in any deposits that may come in, including refunds that automatically get posted to the card used for the original purchase.
- Some transactions can take a long time to clear behind the scenes and could be in progress when the account is closed. Paper checks, in particular, have a bad habit of sitting for a long time before the recipient deposits them. The account owner typically intends for those checks to still be honored (otherwise they would have explicitly cancelled them).
- Paying a charge from the closed account is often times cheaper or more convenient for the account holder. Let's say I have my credit card bill on auto-pay from my checking account that I closed. The bank reactivates the account, pays it, and now I have an overdrawn account plus an overdraft fee. That's not great, but it's far cheaper than the fees and interest I'd owe by not paying my bill on time. Many automatic payments get processed on the due date so by the time you got notification that the auto-pay failed, it's too late to do anything about it.
- Some changes to bank account information don't take effect until "the next billing cycle". For things billed infrequently (such as car insurance that's paid semi-annually), that could mean that it's not possible to update your billing information before the old account closes. Processing that payment on the closed account is a much more straightforward problem to deal with than trying to figure out how to schedule everything to avoid a failed transaction.
- It helps the bank recover any outstanding fees that you owe them. The law gives the institution a "right of setoff", meaning they can deduct any unpaid fees you owe them from your account. When a deposit comes in, they can re-open the account, process the deposit, and deduct whatever you owe them.
It's annoying when the account automatically reopens, but in most cases it's less of a problem than what you could encounter if those transactions were rejected outright.
Regarding your specific situation, your options will depend on how this payment was set up. If this was a push-type payment (i.e., you configured your bank's bill-pay system to send $X on the first of the month), then this seems like the bank's error. Since you typically lose access to the online banking portal after closing your account, it's not reasonable to expect you to cancel it. The bank will have to cancel it for you.
If this is a pull-type payment (i.e., you authorized your landlord to charge your account every month), then the bank was not in error. They were honoring in good faith a recurring payment that you authorized. Your landlord might not have billed the correct account or may have auto-billed you even though you already paid via some other means, but that's a problem between you and the landlord. Some banks have ways to halt recurring ACH debits from their side - similar to stopping payment on a check - but you have to tell them which one to halt and it generally requires a fee.
This answer assumes the OP is in the US. It may not be valid for other jurisdictions (especially in Europe). Given the lack of mentions of jurisdictions and implicit assumptions made in the question, I believe it is safe to assume that. If the OP comes back to clarify the jurisdiction, I'll update the answer.
Yes, you are. Even if they made a mistake, the intention was not to gift you rent money, and part of the terms and conditions that you agreed to when you opened the account is to cooperate with the bank in case of such mistakes.
You can ask them to compensate you for whatever costs you've incurred because of their mistake, but you most definitely have to return the money.
If they take it to court they will most likely prevail, and then you'll also need to pay their (and your) legal fees for that action. I see no reason why you'd want that.
In response to comments (and please don't downvote this just because you don't like it or don't think it's "fair"):
Terms and Conditions are a binding contract, even if the account is closed.
It doesn't matter if the account is closed, the terms and conditions the OP agreed to when they opened it are still a binding contract with regards to that account.
That includes the requirement to explicitly cancel all autopay schedules the bank seems to have and the OP apparently ignored.
The general rule of contract law is that contracts are enforceable. Claiming that the contract is "absurd" or "illogical" (as some commenters did) is meaningless in the court of law. In some countries there are rules and regulations as to what can be in a contract, but it is unlikely that a banking institution would be non-compliant.
Errors provisions are almost always a part of T&C.
Without seeing the T&C or even knowing what credit union (CU) it is and in what country, I can say with very high degree of certainty that the errors and mistakes provision is there. It would be an unthinkable malpractice for a lawyer to draft a terms and conditions for a banking institution without such a provision. Mistakes happen, they happen more often than you think, and neither side is supposed to benefit from them and either side is supposed to cooperate with the other on correcting them.
I have this provision in my rental agreement and every property purchase agreement I signed, the banks wouldn't have it? That's an unreasonable assumption.
Sending the CU to the landlord unlikely to work.
Some comments say "the bank sent the money to the landlord - they should ask the landlord to return it". The OP may suggest it to the CU (assuming the rent was already paid), but it is unlikely to hold in court. The bank was acting on the OP's instructions, and as such it will be the OP's problem, not the landlord's.
Asking an attorney.
Clearly, this is a contractual issue, so asking an attorney is always an option. I'm not an attorney. Duly licensed attorney in your jurisdiction can properly evaluate the T&C and your obligations under them and give you an opinion about your chances if the case goes to trial.
I'd be surprised if you get a different answer from the attorney, but anything is possible. It may not be worth it though, attorneys are pretty expensive.
The CU has power.
As mentioned in the comments, in some countries (e.g.: the US), banking institutions have systems to share negative information about clients. Reporting you to such a system may lead to you being unable to open new banking accounts, and having other difficulties in your financial life.
Clarifying some more misconceptions:
Account no longer exists when it is closed - no, that is not true. Closed account is still an account, it exists. Under some conditions it can be reopened by the bank and the owner will be liable (seems like this case fell into that category). Terms and conditions still govern.
Absurd clauses in T&C will not be enforced - no, that is not true. Terms and Conditions is a binding contract, and contract law applies. Unless there's an explicit law overriding the terms of the contract, the contract will be upheld and enforced. Just because you don't like the conditions or you think that the terms are absurd doesn't mean that the court of law would invalidate the contract.
This seems to strongly depend on the jurisdiction you are in. I posted a question on this situation on the law stack exchange.
If you are in the US, the bank is in the right here. Closing a bank account and revoking authorization to make payments from the account are two completely separate things. As I understand it, if you want to end your business relationship with the bank, closing the account doesn't actually do anything useful. You need to revoke the authorization of the bank to take money from the account and also give the bank a stop payment order. If you didn't do that, a closed account will just be reopened and the payments from it will continue as before. This is spelled out in detail in the contract you signed when opening the account.
If you are in Germany or I assume anywhere else in the EU, closing a bank account indeed ends your business relationship with the bank and afterwards it is the banks duty to block any payments to or from the account. If the bank fails to do that, that is their problem. Of course, if the bank makes an erroneous payment in your name you don't get the money. The bank will try to recover it once they notice the mistake and it is your duty to pay the landlord with your own money.
Why are you under the impression that the account no longer exists? All of its history and statements are still in the bank's database.
By setting up an autopay arrangement with your landlord, you have essentially authorized them to draft money from your account, similar to as if you had written checks against your account that had not yet cleared when you closed your account. I don't think this has the same potential legal consequences as a bad check, but it may.
Likely the bank is also charging you overdraft fees, with the potential for additional administrative fees due to dealing with your mistake. However, these fees are likely less than the late, bad-check, and/or bounced payment fees that your landlord could have changed you.
In the future, make sure that all autopayments are removed and all payments have been posted before completely closing an account.
An additional point:
Once a bank account is closed, there is generally no going back. However, there is an exception: Some banks may reserve the right to reopen an account if another payment or deposit comes through.
When a bank "closes an account," they don't remove it from its database tables, they only flag the account to reject certain transactions like ATM withdrawals. Because they have a responsibility to provide historical data (e.g. "back statements"), the inactive account will probably "live on" for several more years.
In this case, the bank forgot (or didn't advise you) to cancel all auto-pay services that you previously set up. These are often implemented by separate computer systems that were added on to the bank's infrastructure back when such services became popular. Think of a bank as a large, distributed, fault-tolerant computer system with many databases and many servers, and you will have the appropriate mental model: the right hand knoweth not what the left hand is doing, but it works as one big machine.
And since I'm supposed to answer the question... Yes, you owe them the money. Just pay them, and move on with your life. Sure, it is worth asking them to return any fees they charged you, politely, but accept whatever answer they give. There is an emotional cost to allowing your "blood to boil."
If you setup autopay with your landlord and didn't cancel it, this is your mistake and you have to make it right. You aren't quite specific enough for me to say this is for sure what's happening, but that's what it sounds like.
Were you expecting the bank, who has had no prior contact with your landlord, to somehow tell your landlord to stop pulling funds from your account? You authorized your landlord to pull funds from your account and then you closed that account without telling your landlord. That means your landlord still had your authorization to use that bank to access your funds.
The bank had no way of knowing that you no longer wanted to pay your landlord. If you set up alternate payment arrangements with your landlord, then the pull was their mistake and you can try to get them to make good. But the bank only did what you authorized them to do, an authorization you never revoked.
These answers may be correct, but they are rather depressing.
One would assume (I think reasonably) that closing the account an automatic payment is tied to would also cancel the automatic payment, especially as there would be no way to manually remove the automatic payment after the fact (at least on any bank website I use here in NZ). Therefore it's very unreasonable for a bank to continue to enact the automatic payment on an account that is now closed and inaccessible to its original 'owner'.
I actually called one of my banks to ask, and they confirmed any authorised direct debits would fail and automatic payments from the account would be declined, so at least in NZ this would be very much the banks fault if this happened and not the responsibility of the (ex) user - at least as far as they were able to ascertain.