Account holders cannot access funds in frozen bank accounts and usually they are also unable to make deposits. People sometimes freeze accounts if they suspect that they are victims of fraud. Some banks freeze customers' accounts at the behest of creditors or government entities trying to collect unpaid funds from the account holder.
When a bank places a freeze on an account, it takes effect immediately. A freeze does not prevent automated-clearing-house items and other electronic withdrawals that have already been approved from posting. Checks drawn against the account and electronic transactions that occur after the freeze are not paid. A bank freeze remains in place until the person who authorised it instructs the bank to release the account. When a bank releases a freeze, funds become available for use at midnight.
Banks freeze accounts when they detect unusual account activity and are unable to reach the account holder by phone. This can happen when visitors are abroad and use their debit cards because banks suspect the transactions are due to Internet fraud.
Account holders freeze accounts when fraudulent charges post or they lose a checkbook because it's prohibitively expensive to place stop payments on every check.
Creditors can obtain court orders that require banks to freeze accounts of people who are in arrears.
An account freeze prevents funds from being withdrawn from an account. Banks and account holders who place a freeze do so stop fraudulent charges being processed. Regulation E protects account holders from most losses due to fraud if they notify the bank promptly, but it takes up to 45 days for funds to be reimbursed. An account freeze prevents losses in the first instance. Creditors freeze accounts to stop debtors from withdrawing funds to avoid payment.
It often takes up to two weeks to change direct deposits and automatic debits. People who freeze their accounts due to fraud may not have sufficient time to set up alternative methods of payment for automatic mortgage, credit card and utility payments. Regulation E does not protect consumers from fees incurred due to late fees that are indirectly tied to fraud on their accounts. Incoming direct deposits to frozen accounts are rejected, which leaves the account holder without funds for day to day expenses.
People who freeze their own accounts should ask the bank to place a "credits only" freeze on the account. This will prevent direct deposits from being rejected, although withdrawals have to be made in person at the bank.
Some states have laws that protect consumers from having accounts frozen by creditors. New York state does not allow creditors to freeze accounts of benefits recipients and retirees with balances below £1,625 and creditors cannot freeze accounts for anyone with balances below £1,131. Federal law allows for garnishments from Social Security recipients accounts to cover taxes, child support and money owed to government agencies, but limits most other garnishments.
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