By: Money Navigator Research Team
Last Reviewed: 16/01/2026
FACT CHECKED
Quick Summary
Yes – a bank can close a UK account even if card disputes or chargebacks are still open. Closure and “dispute/chargeback processing” run on different rails: the account contract can end while dispute investigations, scheme processes, and complaint handling continue.
In practice, the biggest impact is where money is sent (or recovered from) and whether funds are held back to cover potential liabilities, especially for businesses that accept card payments.
This article is educational and not financial advice.
Disputes vs chargebacks: what we’re actually talking about
People often mix up three different things:
1) A disputed transaction on your bank account
This is when you (as account holder) dispute a payment leaving your account (for example, a card payment, cash machine issue, or transfer dispute). The Financial Ombudsman Service (FOS) explains how it looks at “disputed transactions” complaints and what evidence it expects to see. Financial Ombudsman Service guidance on disputed transactions
2) A “chargeback” as a cardholder
A chargeback is a card-scheme process where your card provider may attempt to reclaim funds from the merchant’s bank/acquirer. UK Finance summarises chargeback as a scheme mechanism (not a legal right), and Visa highlights that time limits can apply and outcomes aren’t guaranteed. UK Finance overview of chargeback and Section 75 and Visa’s guidance on chargeback purchase disputes
3) A “chargeback” against you as a merchant
If your business accepts card payments, a customer’s dispute can become a chargeback that reverses (or temporarily reverses) a past card sale. That liability usually sits under your merchant services / acquiring agreement, not your current account terms.
FOS notes it sees merchant-related disputes and that merchant agreements can include strict rules about evidence and how transactions may be accepted. FOS notes on merchants and chargeback-related disputes
This matters because a bank can close your current account while a card scheme process continues elsewhere.
Can a bank close an account while disputes/chargebacks are open?
Closure is usually allowed – but notice and process matter
Banks generally have contractual terms that allow them to end an account relationship, and the question becomes notice, fairness, and operational handling, not whether a dispute exists.
FOS’s business-facing guidance on account closures says banks should usually give at least two months’ notice, with some exceptions (for example suspected fraud or abusive behaviour), and it highlights that some business accounts have different rules set out in their terms. FOS guidance on bank account closures and notice periods
Separately, the Payment Services Regulations 2017 include a two-month termination notice rule for certain indefinite “framework contracts” (with important scope and exception details). Payment Services Regulations 2017 (official PDF)
A dispute doesn’t automatically “freeze” closure
An open dispute/chargeback doesn’t automatically prevent closure. The practical question is whether closure interrupts access to evidence, refunds, or the route money takes – and whether the provider holds funds pending potential reversals.
For context on how “frozen” accounts differ from “closed” accounts, see our explainer: Difference between a frozen and closed business bank account
What happens to an open dispute if you’re the account holder?
The investigation can continue after closure
A bank (or card issuer) can keep investigating a disputed transaction even if the account is no longer usable day-to-day. FOS’s disputed transactions guidance sets out the sort of information it expects to be considered (such as audit trails, transaction verification methods, and account terms). How FOS looks at disputed transactions
Where the refund/credit lands is the operational pinch point
If a dispute results in money being returned, closure can change how the funds are returned (for example, by sending funds to a nominated account, issuing a cheque, or crediting another product relationship). The exact method is provider-dependent and may be constrained by internal controls.
For cardholder chargebacks specifically, consumer-facing explainers (including the government-backed MoneyHelper) describe chargeback as a card-scheme protection mechanism and distinguish it from Section 75 where relevant. MoneyHelper’s guide to chargeback and Section 75
What happens to open chargebacks if you’re the merchant?
If your business accepts card payments, there are usually two separate relationships:
Your business current account (the bank account being closed)
Your acquiring/processor/merchant services relationship (where chargeback rules and evidence requirements sit)
Chargebacks can arrive after closure because they relate to past sales
A chargeback can be raised after a sale is settled, because it’s a post-transaction dispute mechanism governed by scheme rules and your acquiring terms. UK Finance notes that chargeback is a scheme process and that rules sit with the card networks (e.g., Visa, Mastercard, Amex). UK Finance explanation of chargeback
Visa’s consumer guidance also flags that time limits can apply (often referenced as “up to 120 days” for some scenarios) and that outcomes depend on the facts and rules. Visa chargeback guidance
If the settlement account is closed, recoveries may route differently
If chargebacks are debited from a settlement account that has been closed, the acquirer/processor may:
debit another linked account (if contractually permitted),
net the amount from future settlements,
hold payouts (including rolling reserves), or
pursue recovery as a debt under the merchant agreement.
This is a common reason a business can feel “closed but still being debited”: the liability is tied to the merchant agreement, not the current account’s day-to-day features.
If you’re specifically dealing with chargebacks in a restriction scenario (rather than closure), this related guide stays focused on the freeze mechanics: Chargebacks when a business account is frozen
Summary table
| Scenario | Outcome | Practical impact |
|---|---|---|
| Bank closes current account; you have a pending cardholder dispute | Dispute review can continue | Access to statements/evidence may shift to post-closure channels |
| Bank closes current account; you’re a merchant with open chargebacks | Chargeback process continues under merchant agreement | Recoveries may be netted from settlements or pursued separately |
| Chargeback is upheld after closure | Funds are returned (or recovered) via scheme/issuer processes | Refund route may not be to the closed account number |
| Closure happens during “in-flight” payments | Payment rails may reject/return or reroute depending on stage | Operational disruption to suppliers/customers can occur |
| Bank won’t explain the reason for closure | Provider may rely on terms/controls and provide limited detail | Complaints may focus on notice, process, and fairness evidence |
The mechanics that drive outcomes
1) Notice period vs “effective closure”
A bank may give notice, but day-to-day access can change earlier (for example, card access stopped, limits reduced, or certain features disabled). FOS says complaints often turn on notice, terms, and whether access existed during the notice period. FOS: what it considers in closure complaints
2) Funds can be held back when liabilities are uncertain
Where there’s a genuine uncertainty about pending liabilities (including chargebacks), firms may hold or restrict funds within contractual and regulatory bounds. Whether that happens (and how much) is highly fact-specific and typically anchored in:
account terms,
merchant services terms,
fraud/financial crime controls, and
complaint-handling evidence trails.
3) Disputes don’t always map to “money back into the same account”
Chargebacks are typically processed via card/issuer rails, not via “reopening” a closed current account. MoneyHelper summarises the protection mechanisms available when paying by card, and UK Finance explains the scheme nature of chargeback. MoneyHelper on card protections and UK Finance on chargeback
4) Regulators focus heavily on closure reasons and controls in aggregate
The FCA has published findings and ongoing work on account access and closures, including that the most common reasons firms gave for closing/suspending/declining accounts included inactivity and financial crime concerns. FCA press release on account access and closures
(That doesn’t mean any specific closure is for those reasons; it’s simply the regulator’s published summary of firm-reported categories.)
The mechanics that drive outcomes
1) Notice period vs “effective closure”
A bank may give notice, but day-to-day access can change earlier (for example, card access stopped, limits reduced, or certain features disabled). FOS says complaints often turn on notice, terms, and whether access existed during the notice period. FOS: what it considers in closure complaints
2) Funds can be held back when liabilities are uncertain
Where there’s a genuine uncertainty about pending liabilities (including chargebacks), firms may hold or restrict funds within contractual and regulatory bounds. Whether that happens (and how much) is highly fact-specific and typically anchored in:
account terms,
merchant services terms,
fraud/financial crime controls, and
complaint-handling evidence trails.
3) Disputes don’t always map to “money back into the same account”
Chargebacks are typically processed via card/issuer rails, not via “reopening” a closed current account. MoneyHelper summarises the protection mechanisms available when paying by card, and UK Finance explains the scheme nature of chargeback. MoneyHelper on card protections and UK Finance on chargeback
4) Regulators focus heavily on closure reasons and controls in aggregate
The FCA has published findings and ongoing work on account access and closures, including that the most common reasons firms gave for closing/suspending/declining accounts included inactivity and financial crime concerns. FCA press release on account access and closures
(That doesn’t mean any specific closure is for those reasons; it’s simply the regulator’s published summary of firm-reported categories.)
Scenario-level / process-level / outcome-level
| Scenario-level | Process-level | Outcome-level |
|---|---|---|
| Account closure overlaps with a disputed card transaction | Evidence gathering continues (audit trail, verification method, terms) | Decision may result in refund/adjustment using non-closed payout routes |
| Account closure overlaps with merchant chargebacks | Scheme timelines continue; acquirer requests representment evidence | Chargeback upheld/declined; settlement netting or recovery actions follow |
| Account closed while customers keep paying you | Incoming credits may bounce or be returned | Cashflow interruption until payers update details |
| Account closed while you have outgoing liabilities | Payments mid-flow can fail depending on status | Late fees/operational knock-on effects can be part of complaints impact evidence |
| Bank gives limited explanation | Provider may rely on terms and regulatory obligations | Complaint assessment often focuses on notice, fairness, and procedure evidence |
Payments still “in motion” when an account closes
Disputes/chargebacks aren’t the only moving parts. Businesses often discover closure issues because payments don’t land or don’t leave as expected:
If funds are heading to a closed account: Incoming payments when a business account is closed
If funds were sent from an account that closed mid-processing: Outgoing payments if an account is closed mid-processing
These payment-rail outcomes can coexist with dispute processes – and add practical friction even when the dispute itself remains active.
Compare Business Bank Accounts
Different providers structure closure notice, ongoing support channels, and how they handle card-payment ecosystems (bank account vs acquiring vs processor) differently. A neutral comparison framework (features, eligibility, fees, and operational fit) is here: Business bank accounts
Frequently Asked Questions
A bank can close a business account for reasons set out in its terms, and the existence of chargebacks doesn’t automatically prevent closure. Chargebacks are usually governed by the merchant services/acquiring relationship, which can continue to operate even if a current account relationship ends.
From a complaints perspective, the Financial Ombudsman Service notes that closure complaints often focus on reasonable notice, adherence to terms, and the evidence trail around the decision-making and impact. FOS guidance on bank account closures
No – closure of a current account does not automatically cancel a chargeback process. UK Finance explains that chargeback is a scheme mechanism managed through card providers and the merchant’s bank/acquirer under scheme rules. UK Finance on chargeback
In merchant scenarios, liabilities often sit under the merchant services agreement, so the operational question becomes how recoveries are handled (netting, reserves, or other recovery methods) rather than whether the chargeback “still exists”.
Chargebacks are typically based on historical card transactions and scheme rules rather than whether the merchant’s current account remains open. Visa’s guidance indicates that chargeback time limits can apply and vary depending on circumstances and provider processes. Visa chargeback guidance
Even after closure, card networks and acquirers can continue to process disputes tied to transactions that already occurred, which is why closure doesn’t necessarily end post-sale liability.
Yes. A disputed transaction investigation can continue even if the account is closed, because the dispute-handling process and the account contract timeline aren’t the same thing.
FOS’s disputed transactions guidance describes the types of evidence and analysis that typically underpin outcomes (verification methods, audit trails, terms, and circumstances). FOS approach to disputed transactions
That depends on the rail. A chargeback is generally handled through the card/issuer route rather than by “reopening” the closed account number, and providers may use alternative payout methods depending on policy and controls.
MoneyHelper summarises chargeback as a card-scheme protection mechanism and distinguishes it from other legal protections, which helps explain why refunds may not map neatly onto a closed current account. MoneyHelper on card protections
It can happen that funds are restricted or held while liabilities are unresolved, but whether that is permitted (and to what extent) depends on the terms and the factual basis for the risk the provider is managing.
When FOS considers closure complaints, it notes it may look at whether funds have been held or released and the evidence supporting the provider’s approach. FOS guidance on what it considers in closure complaints
There isn’t one single standard across all business accounts, but FOS says banks should usually give at least two months’ notice, while also acknowledging exceptions and that some business accounts rely on their specific terms. FOS on notice periods
Separately, the Payment Services Regulations 2017 include a two-month termination notice provision for certain indefinite framework contracts, with scope limitations and exceptions that can matter in practice. Payment Services Regulations 2017 (official PDF)
Yes – FOS notes that a bank doesn’t have to explain why it closed an account, although it indicates it can be helpful when it can be shared. FOS guidance on closures
In real-world complaints, the assessment often becomes “were terms followed, was notice reasonable, and is there a coherent evidence basis for the decision”, rather than a full disclosure of internal risk triggers.
FOS’s “Before we get involved” guidance states that businesses generally have up to 8 weeks to resolve most complaints, and 15 days for most payment services complaints (with up to 35 days in exceptional circumstances, while still updating within 15 days). FOS: how long firms have to resolve complaints
Where eligibility and jurisdiction apply, unresolved complaints can then be escalated to FOS, which considers law, regulation, and what is fair and reasonable on the evidence.
It depends on the product and transaction type. A “disputed transaction” complaint can be about how the provider handled an investigation or outcome; a “chargeback” is typically a card-scheme process with rules managed through the card provider and acquirer.
UK Finance’s explanation of chargeback and FOS’s guidance on disputed transactions are useful for separating these routes and understanding why closure doesn’t automatically end either process. UK Finance on chargeback and FOS on disputed transactions
Account closure feels like a “hard stop”, but disputes and chargebacks behave more like an after-the-fact liability layer.
The closure decision sits in the account contract and risk controls; the dispute outcome sits in evidence standards, scheme rules, and complaint-handling frameworks.
When those two timelines collide, the real friction is rarely “whether the dispute exists” – it’s which rails still move money, and what the provider must ring-fence while outcomes remain uncertain.
Sources & References
Financial Ombudsman Service: bank account closures (notice, fairness, evidence)
Financial Ombudsman Service: disputed transactions (what evidence is considered)
Financial Ombudsman Service: complaint handling timeframes (“Before we get involved”)
Payment Services Regulations 2017 (official legislation PDF)