When an Automated Clearing House (ACH) payment is sent to a closed bank account, the transaction typically fails, and the funds are returned to the originating sender.
The Process of an ACH to a Closed Account
When an ACH transfer, such as a direct deposit, vendor payment, or bill payment, is initiated towards an account that has been closed by the account holder or the bank, the receiving bank will recognize the account as invalid.
Here's a breakdown of what generally occurs:
- Rejection by the Receiving Bank: The financial institution that holds the closed account will identify the ACH attempt and reject the transaction. This is because there is no valid account to deposit the funds into or debit from.
- Return to Sender: The funds will then be returned to the originating bank that initiated the ACH transfer. This process isn't instantaneous. It often takes approximately five to ten business days for the funds to be successfully returned to the sender's account.
- Notification: The originating bank may notify the sender that the ACH transaction was returned due to an invalid account number or a closed account. Similarly, if it was an attempted debit from a closed account, the biller or payee would receive a notification of the failed payment.
Why Accounts Are Closed
Bank accounts can be closed for various reasons, including:
- The account holder actively closed the account.
- The account was closed by the bank due to inactivity.
- The account was closed due to suspicious activity or negative balances.
Regardless of the reason, a closed account cannot process new transactions.
Impact on Different ACH Payment Types
The impact of sending an ACH to a closed account varies slightly depending on whether it's a credit (money coming in) or a debit (money going out).
ACH Credits (e.g., Direct Deposits, Vendor Payments)
| Scenario | What Happens | Impact on Recipient |
|---|---|---|
| Direct Deposit | Paycheck is returned to the employer. | Employee does not receive their pay on time; payment is delayed until new details are provided. |
| Vendor/Customer Payment | Payment for goods/services is returned to the payer. | Recipient does not receive payment; may lead to service interruption or late fees for the payer. |
| Tax Refund/Government Aid | Refund/aid is returned to the issuing government agency. | Recipient's funds are delayed; they must update their information with the agency. |
ACH Debits (e.g., Bill Payments, Loan Payments)
| Scenario | What Happens | Impact on Payer |
|---|---|---|
| Automated Bill Pay | The utility company or service provider's attempt to debit the account fails. | The bill remains unpaid, potentially incurring late fees or service disconnection. |
| Loan Repayment | The lender's attempt to collect the loan payment fails. | The loan payment is missed, potentially leading to late fees and negative credit reporting. |
| Subscription Payment | The service provider's attempt to charge for the subscription fails. | Subscription service may be suspended or canceled due to non-payment. |
What to Do If an ACH Is Sent to a Closed Account
Both senders and recipients have steps they can take to resolve the situation and prevent future occurrences.
For Senders (Originators of the ACH)
- Monitor Your Account: Keep an eye on your bank statement for a returned transaction. This indicates the ACH was unsuccessful.
- Contact the Recipient: Immediately inform the recipient about the failed transaction and request updated bank account details.
- Verify Information: Before resending, double-check the new account and routing numbers provided by the recipient to ensure accuracy.
- Communicate Delays: If it's a critical payment (like a payroll), inform the recipient about the expected delay until the funds are returned and re-sent.
For Recipients (Expected to Receive or Pay via ACH)
- Update Payment Information Promptly: If you've closed an account, ensure all entities making or taking payments from you have your current bank details.
- Contact the Sender: Reach out to the person or entity sending you money (e.g., employer, client) or collecting money from you (e.g., utility company, lender) to provide them with your new account information.
- Inquire About Missed Payments: If you expected an ACH credit and didn't receive it, or if you expected an ACH debit to clear but your bill isn't paid, contact the sender/biller.
- Make Alternative Arrangements: If a bill payment failed, make an immediate alternative payment (e.g., via a different bank account, credit card, or check) to avoid late fees or service interruptions.
Sending an ACH to a closed account is a common issue that typically results in the funds being returned to the sender. While it causes delays, it rarely leads to lost money, provided the correct steps are taken to update banking information and resend the payment.
