Banks used to lock accounts temporarily for a brief period of time when a user attempted to login too many times unsuccessfully. This timeout was usually temporary and would resolve itself with time. In some cases the user could call in and verify some information to unlock the account, all usually done within 5 minutes.
Now, however, some banks and fintechs are pushing this to a new level. Instead of a 5 minute fix some companies such as Chime are locking down the account for 30 days or more for simply entering in the wrong password. Some users have had accounts locked for 90 days or more. One woman in Atlanta had the account locked for 10 months.
The reason for this I believe is a result of their being very little government oversight regarding what is the proper procedure for locking accounts. The government lets companies decide on their own what the best practice is and for how long to lock accounts.
This plus the fact that filing a complaint with a fintech takes twice as much work because there are two companies to deal with the fintech and the FDIC bank they work with. So in the end the customer has to do double the amount of complaints.
Another thing that is especially important right now is that the federal funds rate or interest rate is very high. Banks can buy treasuries and get a 5%+ return or loan out the money at a high rate.
Fintechs such as Chime don’t pay any interest on their checking account so can freeze the account and then get a high return on the frozen customer funds without having to pay the customer.
A trap that some of the companies are using is to have two accounts such as a checking account that pays zero as well as a savings account. Transfers in and out go into the checking which pays zero. So if the checking account has a large transfer going in or money that is ready to go out an incentive exists to lock the account down.
Some of these fintechs such as Current bank have a built in trap to lower the rate. The rate boost is dependent on direct deposit. As soon as the direct deposits stop, then the rate drops.
So, for example if the account is frozen, perhaps the direct deposits will stop or the customer will cancel the direct deposit since he/she no longer has access to the bank account. In such a case, the bank will be able to use all funds in the account at a much lower rate then such as .25% with Current vs 4.00% APY with the direct deposit.
The reason for locking the account could be almost anything and the company is free not to tell the end users the reason for locking the accounts.
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