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Freezing Funds is a Common Bank Practice … that’s Generally Illegal

June 28, 2012 by  


By Tarek M. Baydoun

tarek baydounIt has become common practice for Wall Street and regional banks to close “suspicious” accounts. The banks claim that these accounts, usually involved in wire transfers and international business transaction, are high-risk accounts and they are taking necessary steps to protect their businesses. While it is clear that banks are not under any obligation to open an account for someone, and can close accounts for reasons it deems necessary, there has been much speculation recently about the true motivation of certain banks and government agencies in recently closing the accounts of Arab and Muslim owned businesses.

Regardless of whether or not a bank has the right to close an account, it almost never has the right to simultaneously freeze your funds, even if the account agreement states otherwise. Article 4A of the Uniform Commercial Code or “UCC”, as adopted into the Michigan Compiled Code, and particularly MCL 440.4904(1) states: “if a beneficiary’s bank accepts a payment order, the bank is obliged to pay the amount of the order to the beneficiary of the order. Payment is due on the payment date of the order, but if acceptance occurs on the payment date after the close of the funds-transfer business day of the bank, payment is due on the next funds-transfer business day. If the bank refuses to pay after demand by the beneficiary and receipt of notice of particular circumstances that will give rise to consequential damages as a result of nonpayment, the beneficiary may recover damages resulting from the refusal to pay to the extent the bank had notice of the damages…” It should be noted that this law “may not be varied by agreement or a funds-transfer system rule.”

Furthermore, superseding State law, the “Expedited Funds Availability Act” requires that the funds in question be made “available for withdrawal not later than the business day after the business day on which such cash is deposited or such funds are received for deposit.” (sec. 603(a)(1)(B).) Federal and state law allow for attorneys fees in situations where banks illegally freeze funds.
So why are the banks boldly contravening state and federal law by freezing so many accounts? The answer seems simple to me, they just don’t care. Banks have huge legal budgets to defend against such actions, and many account holders do not know their rights, or assume that they can and have signed them away. Many account holders will continue to lose unless they have adequate legal representation, and enforce their rights in the courts.

- Tarek is an Attorney and Counselor at Law with The Meridian Law Group, of counsel to Allen Brothers, PLLC. He can be reached at 313.962.7777 or at tbaydoun@allenbrotherspllc.com.

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