Bank of Lithuania position: Banks and credit unions should close dormant customer accounts
The Supervision Service of the Bank of Lithuania has approved a position urging credit institutions to take active action to close resident accounts that are unused for an extended period but cost.
‘By approving our position concerning dormant accounts we aim at the prevalence of a uniform standard of banks’ behaviour with clients in the market. For example, banks’ practices with dormant accounts currently vary, but most of them apply a fee for the administration of such accounts, while calculating a debt where no funds are available on them. While the contracts do provide for that, we see such practices as faulty and thus credit institutions, as the stronger party, should spare more effort to protect the interests of their clients,’ says Vytautas Valvonis, Director of the Supervision Service at the Bank of Lithuania.
Based on the Civil Code of the Republic of Lithuania, commercial banks or credit unions have the right to close a dormant and empty account already after a year, but this is not their duty. According to the data submitted to the Bank of Lithuania, as at 31 May 2017, out of nearly 5 million accounts of natural persons with banks, almost a third (1.65 million) were unused, i.e. no operations were performed on them for more than a year. More than 1 million of these dormant accounts were empty.
The Bank of Lithuania’s position defines the following directions for good behavioural practices with dormant accounts:
- Banks and credit unions should actively exercise the right to close dormant accounts: where no operations are performed on a client’s account which is not the basic payment account and no funds are avilable on it, credit institutions should terminate the contract and close the dormant account. Prior to closing the account, banks and credit unions must notify the client no later than 60 days in advance.
- Credit institutions are recommended to give up debt accumulation practices: credit institutions should not calculate debts for clients on whose accounts no payment transactions are carried out and no funds are available; upon agreement with the client, it is suggested to close such accounts.
- Banks and credit unions should actively ascertain whether the client needs the account: when no operations are performed on a client’s account which is not the basic payment account for a period longer than one year but some funds are available on it, credit institutions should take action to ascertain the need for the customer to hold such an account. The good practice would be for credit institutions to notify clients of the dormant account, administrating fees applicable, and the possibility to close or transfer it.
Prior to approving its position, the Bank of Lithuania actively urged banks operating in the country to address the issue and not to shift it onto consumers. During February–May alone, banks closed about 120 thousand dormant accounts. They were doing it throughout last year, while basic changes are expected by the end of the first quarter of 2018, upon collection and summary of updated statistics.
‘While this message is for credit institutions, their clients should not be passive either: they should check out if they hold forgotten accounts, have updated their contact information, so that credit institutions be able to contact them. Where the accounts are unnecessary, perhaps they could be abandoned. Moreover that the basic payment account service available since last year enables getting all basic services at an affordable price when holding one account with one bank or credit union,’ says Mr Valvonis.
The Bank of Lithuania’s position on the administration of dormant accounts is designated for banks and credit unions, while payment institutions and electronic money institutions are recommended adhering to it.
It should be noted that this position cannot be considered an official explanation to legal acts. Since the Bank of Lithuania takes decisions, e.g. in the event of a dispute, considering the entirety of specific actual circumstances, this position cannot be deemed a Bank of Lithuania’s decision in each specific case.