What is the right to offset?
Most banks have the right to transfer cash from your bank or savings accounts to pay off other debts held with them, such as credit cards or loans. It is known as the right to “‘set-off”, or to combine accounts.
While any firm can add set-off terms into its contract, in banking and tax there’s an automatic right to use the procedure.
Your bank should let you know if it’s going to extend that automatic right, such as moving money between organisations in their group, to/from an account held in joint names, or from business to private accounts.
If you owe money, your bank can also offset any cash you’ve received from reclaiming mis-sold PPI.
What effect does this have on you?
Setting-off can cause endless problems. If you have money set aside to pay for imminent cheques or direct debits from your accounts, but the bank takes it to set-off against a debt, then your bills may not be paid and you could face bank charges.
This could also lead to further problems if priority bills such as rent, mortgage, utilities and council tax are not paid leading to threat of eviction or repossession or having your utilities disconnected.
How to prevent this from happening
Keep your debts and bank account/savings in separate institutions. This will probably entail opening a new safe bank account. The new “Switch” system makes this relatively easy as your new bank can switch everything over from your old bank within 7 days – including all your Direct Debits and Standing Orders.
When looking for a new bank account, opt for a basic bank account – this will not have an overdraft but neither will the new bank need to do a credit check (although some will still check). And remember to move to a bank that you have no debts with.
Getting a refund
Before using the Right to Offset, banks are supposed to check if you are in financial difficulty and leave you enough money to cover reasonable day-to-day living expenses and priority debts such as a mortgage, rent, council tax and food bills.
Banks are also expected to take special care when it knows your income mainly comes from state benefits, or if expenditure is needed for certain purposes such as healthcare.
If your bank has taken money, but hasn’t taken the rules into consideration, get in touch straight away and ask for the money back. In most cases, as long as you can show you’re in financial difficulty, it should provide a refund. If the bank is reluctant to refund the money then you can use the Right of First Appropriation.
You will need to write a letter, take it to the bank in person and insist on it being actioned there and then. If you post letters they will often go to central processing centres and may not be dealt with immediately, by which time it may be too late.
For further information contact us on 0800 316 1833 or request a callback using our ‘Get advice button’.