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Complaints of malpractice as banks set-off customer accounts
Wednesday 24th March 2010Has your bank helped itself to your savings recently? Dipped into a joint account to pay off a loan that had nothing to do with the other partner? A practice known as ‘setting off’, banks are often legally entitled to move money around multiple accounts, (when held by the same customer), in order to meet outstanding payments.
Although banks are usually within their legal remit to do this, the Financial Ombudsman highlighted recently the number of complaints received from customers left in financial difficulties as a result.
Indeed, many customers are unaware that banks carry out this practice at all, and have been left shocked to discover their bank moving their money between accounts without their consent or knowledge.
And what’s more, according to debt expert and director of Atlantic Financial Management, Kevin Still: “seldom do banks do this to the benefit of a personal banking client – for example, by moving money from a savings account to avoid going over an overdraft limit and incurring a £35 charge.”
Mr Still added: “It is not unusual for a customer to have a current account, a personal loan, a credit card account and possibly a mortgage - all with the same bank or building society. The basic position is that your bank has a right – but not a duty – to look at a customer’s overall position and to ‘combine’ the accounts held, whether or not it mentions the right in the account terms.”
Although banks are allowed to ‘set-off’, many complaints upheld by the Ombudsman point to the easily avoidable lack of communication between banks and customers, which leads to the customer being financially worse off.
One example where a complaint has been upheld, includes a cleaner who, having changed jobs, had a new pay schedule and subsequently new incomings. Had she been left to manage her finances, she would have altered her direct debits and repayments accordingly. According to the Financial Ombudsman, “the bank made it very difficult for her to manage her account. It also caused her more inconvenience than she might reasonably have expected, when moving to a new employer and a different pay schedule.”
In recent years, the Financial Services Authority (FSA), have implemented new measures designed to improve the quality of service between banks and customers, in particular through the ‘Treating Customers Fairly” initiative brought in during 2008.
It would seem then that, despite these measures, banks often suit themselves when it comes to looking at a customer’s overall position. And you thought loyalty was rewarded…
An example on the Financial Ombudsman site, highlights the case of what happened to an anonymous bank customer, simply labelled ‘Mr G’…
Mr G had a current account and savings account at the same bank. The overdraft facility on his current account was originally £5,000. However, on several occasions over the previous three years the bank had agreed to his request for an increase. He had said he needed the money temporarily while he was waiting for his divorce settlement to be finalised.
When the overdraft reached £40,000, his bank wrote to tell him it would only extend his overdraft facility for a further three months. It said he would then have to repay the money – and it asked him to set out how he proposed to do that.
Mr G wrote back suggesting the bank should reduce his debt to £25,000. He said he would be able to repay that amount, interest-free, by making a lump sum payment of £5,000 followed by monthly payments of £500.
The bank did not respond to that letter. Three months later, it sent Mr G a formal demand for the repayment of his overdraft debt – which then stood at £38,000. At the same time, and without telling Mr G, it transferred £12,000 from his savings account to his current account, to help reduce the overdraft. It also cancelled all the direct debits on his account and stopped his debit card. Mr G only discovered this after his debit card was ‘swallowed’ by a cash machine and he started to receive calls about missed payments from direct-debit mandate holders.
Mr G complained to the bank that it had acted unfairly in ‘helping itself’ to his savings ‘without warning’. He also complained that the bank had caused him considerable difficulty by cancelling his account arrangements. The bank did not uphold his complaint, so Mr G approached the Financial Ombudsman.
The bank provided evidence that, well before it had written asking Mr G for his repayment proposals, it had made clear to him its concerns about the level of his debt. The ombudsman considered that, in the circumstances, the bank had been entitled to use the balance of his savings account to help repay the long-standing debt.
However, the ombudsman did not think the bank had handled the situation well. It was unable to explain why it had not responded to Mr G’s letter about his plans to repay his debt. If it had contacted him when it received that letter, Mr G would have realised in good time that his proposals were not acceptable.
The Financial Ombudsman also thought that the bank should have told Mr G that it had set off his accounts and cancelled his direct debits and debit card.
The bank admitted that its failure to do this had come about because of poor communication between the branch where Mr G’s accounts were held and the collections department at the bank’s head office. Each assumed the other had written to Mr G to tell him what had happened.
In the end, the ombudsman did not uphold Mr G’s complaint that the bank had treated him unfairly in setting off his accounts. However, it said that the bank’s administrative failings had caused him some embarrassment and inconvenience. The bank offered to reduce Mr G’s debt by £350, in acknowledgement of this, which the ombudsman said was a fair settlement in the circumstances.
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