Should I change my bank?

25 August2009

If you`re in debt to a bank you have an account with, you may have heard that they can take money out of your account. This is actually true, but only under certain circumstances.

The right of `set off`

A firm has the right to use money in one of your accounts to make payments due on another account. This is true even if it`s not mentioned in the terms of the account - but that doesn`t mean the firm will do this.

This is known as the right of `set off` or the right to `combine` accounts.

Please note: banks shouldn`t do this if they know it would `distress` you financially - if it would leave you unable to pay for your day-to-day essential living costs, for example. If a bank does exercise the right of set off and you end up in financial distress as a direct result, you should phone them and ask them to refund the money.

What are the rules?

  • A firm can only take money from an account which is held by the person who owes it money.
  • The account it takes money from and the account which should be providing the money must be held with the same firm.
  • The accounts must be held `in the same capacity` - so if you have an account in your capacity as (for example) treasurer of a club, the firm couldn`t take money from that account to pay a personal credit card bill of yours.
  • The debt must be `due and payable`. If you miss one payment to a loan, for example, the firm can only take that one payment from an account of yours, not the entire balance of the loan.

In general, firms wouldn`t use the right of set off unless they had given you a reasonable opportunity to pay the debt (of course, `reasonable` can mean many things, and may depend on how you`ve handled your account so far).

Even so, firms wouldn`t normally warn you first if they were about to make a transfer like this, as this might lead you to move your money to a different firm. In general, however, they should inform you as soon as possible after they have done this.

What can I do?

If you`re concerned about this, wondering if you should open an account with a different bank, and looking for more information on the right of set off, you can talk to the Financial Ombudsman Service, whose job it is `to settle individual complaints between consumers and businesses providing financial services`.

Click here for the Financial Ombudsman Service`s contact details, or click here to see the information it provides on the right of set off.

Set up by parliament, the Financial Ombudsman Service provides a free service to consumers, examining complaints about all kinds of financial matters - `from insurance and mortgages to investments and credit`. As the website says, `Each year we deal with around a million enquiries and settle over 100,000 disputes`.

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