S1L19 – Can a bank just freeze your account?
I do legal education in my Facebook account, and on my webpage, but not legal counselling. So for those who have asked me if they should close their bank accounts with BPI, PNB, Land Bank and Rang-ay Bank because these banks are reported to have frozen the BENECO account, my answer is you must decide based on nothing but the facts and the law. And here they are:
What we call a “bank account” is actually a contract of loan (in Latin “mutuum”) wherein the bank is the BORROWER and the depositor is the LENDER. People are shocked by this because we get so used to thinking we are the ones begging banks to give us back our own money when we queue at the teller window or at the ATM machine to do a withdrawal.
In fact, when you “deposit” your money, you are giving your consent for the bank to use it (together with the money of thousands of other depositors) to buy treasury warrants, acquire other active investments or to RE-LEND it to others (that’s the only time a bank actually becomes a creditor). In return, the bank must PAY BACK the depositor by increasing his money in balance by the prevailing interest rate.
The bank cannot use all of “its money” to buy profit-yielding investments. The Bangko Sentral ng Pilipinas (BSP) requires banks to maintain a level of cash liquidity to service withdrawals.
A “withdrawal” is like asking your friend, “Akina na nga muna yung P100 dun sa P1,000 na pinahawak ko sayo, hindi mo pa naman ginagamit.”
Your friend STILL owes you P 1,000 despite the fact that you got back P100. Of course, if you decide to cancel the loan (just like closing an account) expect to get back only P900 since you already pre-collected P100.
Logically, also, you cannot “re-borrow” too much. You can’t say, “Akina na muna yung P999 dun sa P1,000 sa pinahiram ko sa yo…” because that makes the mutuum meaningless. You must leave untouched some residual amount and that is the “maintaining balance”; it differs from one bank to another.
There are many scenarios when a bank can freeze your account, as in disallow a withdrawal. If you issue a “bouncing check,” it will be dishonored and stamped “DAIF”- which stands for “drawn against insufficient funds.”
The bank can also freeze your account on the Order of a court and the reasons can be almost anything: to satisfy a judgment, determine true ownership, check a mathematical error, etc. Really, practically ANY reason the court can think of—emphasis on “THE COURT.” But it has to wait for that order containing all the relevant information. Otherwise, the bank knows nothing.
If the Anti Money Laundering Council (AMLC) thinks you deposited ill-gotten money which was the fruit of a crime, it can ask the Court of Appeals to freeze your account for 30 days, under RA 10167. Of course this has to mean that the AMLC thinks YOU participated in that crime. Note that it should be the AMLC that suspects you of being a criminal, not the bank. The bank knows nothing.
If you decide to die, the bank will temporarily freeze your account, too, to give time for me (or whoever your lawyer is) to settle your estate’s affairs based on your last will and testament or the rules on intestacy if you were too busy and died without a will. But the bank must await advise from the next-of-kin because the bank has no idea when you decided to die. The bank knows nothing.
The BIR can also ask a court to ask a bank to freeze your account, or a portion of your deposit to cover unpaid and collectible taxes. The BIR will, of course, inform the court to inform the bank, how much money we’re talking about. The bank knows nothing.
Sometimes, a depositor himself can tell the bank to “stop payment” on a check or series of checks he himself issued. But he needs to explain to the bank why, like, “my bad, I presigned an entire check booklet and now I can’t remember where I put the darned check booklet!” he must tell the bank the reason. The bank knows nothing.
To be honest, there must be more situations than I can think of right now when a bank can freeze your account—insolvency (running bankrupt), being placed under receivership, force majeur (the building burned down), unusual activity (like a bank run, as when suddenly all MCO’s decide to close all their accounts at the same time with a particular “naughty” bank), outbreak of war, widespread rioting or civil strife over a sustained period, the list can go on and on.
Under which of these scenarios did BPI, PNB, Landbank and Rang-ay Bank “freeze” the account of BENECO.
I don’t know.
In fact, I don’t even know if they actually froze the account or if they just blacklisted particular BENECO officers.
That can be easily tested. A frozen account means no transactions will be allowed on it. Therefore we know that PNB did NOT freeze the BENECO account. They allowed somebody to withdraw ONE MILLION PESOS from it. If they allowed it once, nothing stops them from keeping on allowing it.
Under bank secrecy laws, it is the BANK which is not allowed to disclose information about an account. The depositor can stand in the middle of Malcolm Square plaza with bullhorn in hand and announce all his banking information.
He can say something like, “Hellooo everybody! My bank, the Pera No Balance (PNB) Kayang Branch, froze my account today, I still have P173,567,442.55 in my balance…so after a month or so, let’s see if that figure goes down…!”
Can the bank stop you from doing that? How can it? It doesn’t even know WHEN you’re doing it. The bank knows nothing.
There are many cases when banks were sued for negligence by depositors. In fact, I assigned the class of Mr. Juan Dimacaawat to read one, the case of BPI versus Buenaventura (G.R. No. 148196, September 30, 2005) so they will know what is the favorite defense of banks in trouble.
“Your Honor, the bank knows nothing.”
The bank LOST. Bigly.
The moral: banks who act like they know everything ultimately find out they know nothing. But knowing nothing is not going to save them because—and Mr. Juan Dimacaawat is dislocating his shoulder raising his right hand and furiously waving it in the air wanting to interrupt me by reciting—”ignorance of the law is not an excuse.”
And, oh, just like nocturnal blitzkriez raids on a private office ultimately fizzle out—and then lawyers begin to slowly, deliberately and methodically piece things together like “lining up the ducks” in a shooting gallery, it will be hell to pay when the day of reckoning comes.
The only problem I can imagine is some depositors may not have that much patience and cannot wait. If they banded together and caused a bank run, boy they can really bring down any bank flat on its face. Ask Banco Filipino.
Will the BENECO MCO’s do something like that? Will they punish a bank and teach a bank a lesson it cannot forget?
Don’t ask me. I know nothing.
The author is a writer and lawyer based in Baguio City, Philippines. Former editor of the Gold Ore and Baguio City Digest, professor of journalism, political science and law at Baguio Colleges Foundation (BCF). He is a photographer and video documentarist. He has a YouTube channel called “Parables and Reason”