What US law requires a bank to reopen a closed account if a third party sends money to it?

Question

I used to have an account with a local credit union. I moved, then closed the account. The credit union mailed me a check for my remaining balance and confirmed the account was closed. This was 14 months ago.

Last week, someone tried to send me money via popmoney to that account. The credit union reopened the account and deposited the money. If the credit union had not started emailing me promotional junk immediately after reopening the account, I would never had known I was sent any money or that the account was reopened. In fact I only learned as much because I tried to log in to their online banking to opt out of the junk mail, and noticed to my surprise that not only could I still log in, but I had an open account with a balance.

I asked the bank why my account was active and the popmoney was not rejected as I expected it should be, and they told me

Any time there is a deposit request for a account that has been closed we by law must reopen the account and deposit the funds.

What law are they referring to and what's the reason for it?

In my case, if it weren't for the junk mail I could easily have never found out about it. What good does closing an account do if any third party can reopen it by trying to deposit money to it? Is there a better way to completely destroy an account that I should ask for next time to prevent this from recurring?

Answer 1

There is no Federal law that mandates that they must re-open a closed account. They can either refuse the transfer / return the money, or they can optionally re-open your account so they get money (makes more sense for them). It is, however, in one of your agreements that they reserve the right to re-open a closed account in order to receive the deposit. At which point, your account will become active, and the balance may be below the required minimum balance threshold, so you may have maintenance or low-balance fees charged against the account (Credit Unions are less likely to have these fees).

If you want to call them out on their BS, you can ask them to cite the law which mandates the re-opening of closed accounts. They will likely fall back on your Member agreement. There may be some state laws that discuss this, but I haven't found anything.

This has become such a problem for some bank customers (where they are charged fees on the money they weren't aware they had) that a law was proposed in Sept. 2013, called the Freedom and Mobility in Consumer Banking Act, which would essentially only allow the named account holder(s) to re-open a closed account.

UPDATE: June 20th 2014

I went ahead and looked up the NACHA guidelines for ACH transfers (I got the 2013 version) 2013 Corporate Rules and Guidelines.

These lines reference "Article 4A", which is Uniform Commercial Code Section 4A - Funds Transfer.

Document Pages: OR39-OR40
PDF Pages: 113-114

SECTION 3.8 RDFI's Right to Transmit Return Entries    

SUBSECTION 3.8.3 Exceptions to Timing Requirements for Return Entries

SUBSECTION 3.8.3.1 Timing Requirements of Return of Credit Entry Subject to Article 4A
An RDFI must Transmit a Return Entry relating to a credit Entry subject to Article 4A to its ACH Operator prior to the time the RDFI accepts the credit Entry as provided for under Article 4A, unless: [...]
(b) the Receiver's account has been closed; or [...]

This means that if your account is actually closed, they have an exception to the standard timeframe for issuing a Return Entry.

SUBSECTION 3.8.3.2 Timing Requirements for Credit Entries Refused by Receiver
An RDFI must return any credit Entry that is refused by a Receiver. [...]

This means that if you notify them (in writing) that you refuse any future credit Entries to the account, they MUST return them.

I then went looking for the return reason codes

Document Page: OR127
PDF Page: 201
Part 4.2 Table of Return Reason Codes

Code: R02
Title: Account Closed
Description: A previously active account has been closed by action of the customer or the RDFI.

RDFI = Receiving Depository Financial Institution

From what I gather, based on these NACHA guidelines, your CU didn't actually close your account. They put it on "hold" or some similar state. If they actually close your account, they are required to issue a Return Entry with Code R02.

In your case, your CU doesn't charge you any maintenance fees, but for those working with banks, the best bet is to notify them in writing that you refuse any future credits to the account, or go into a branch and insist on fully closing out the account.