Banks that want to close an account over reputational risks will have to make the reasoning “specifically clear” to the customer, the government said on Monday.
It’s part of the planned regulatory change to make it harder for payment service providers to de-bank customers for primarily commercial reasons.
Under current rules, payment service providers can terminate a contract without telling the customer why. They are typically required to give at least two months of notice unless it’s unlawful to do so or when a customer behaves in a threatening way towards staff.
The notice period will be extended to 90 days and service providers will have to inform the customer of the reason for an account closure.
“Therefore, if a provider chooses to terminate the contract for primarily commercial reasons, such as due to a policy decision by the provider not to take on the cost or reputational risk of certain categories of customer, this should be made specifically clear to the customer,” the document reads.
However, the government doesn’t intend to define what constitutes clear and tailored explanatory reasons in the text of the law.
Ninety days’ notice of termination should be provided, with limit exceptions such as when it’s illegal to do so or when it poses a risk of “serious or significant harm to the customer, to staff, or a connected third-party to the framework contract,” the Treasury said.
Where the customer is not a consumer, a micro-enterprise, or a charity, a service provider and the customer can reach their own agreement on how long the notice period should be, but the government said providers should make 90 days a default offer.
The government has already asked service providers to begin implementing the new rules.
The Financial Conduct Authority has said it will take “prompt action” if a bank or financial service outright denies service to politicians rather than basing the decision on risk.