Vulnerable Scottish consumers are having their accounts raided without warning by unscrupulous banks using set-off to obtain credit card and loan arrears payments.
In recent years, lenders have stepped up their efforts to sell their products, with the result that many people end up with loans or credit cards with the same institution they have a current account with. If a customer falls into arrears, lenders have started to transfer funds from their current account to pay off the debt under the rights of off-set. The result is spiraling debt problems and dire poverty, with victims struggling to meet mortgage payments and sometimes even buy food.
Citizens Advice Scotland (CAS) has seen an 80 per cent increase in the number of queries regarding set-off in the last four years, and Keith Dryburgh, spokesman for CAS, said: “By unilaterally using the right of set-off, banks prioritise payment of a credit card or personal loan debt above more important commitments, where non-payment results in loss of home, disconnection of supply and difficulties affording essentials for clients and their families.”
Perfectly legal but very unfair
While banks can use the rights of off-set, they are expected to give customers a reasonable opportunity to repay their debts first according to the Financial Ombudsman Service (FOS). It is perfectly legal for banks to transfer funds from current or savings accounts to pay an individual’s credit card or loan arrears without their permission. Banks’ claim off-set helps individuals clear their debts and is in their best interests. However often the only way people find out what has happened is if they try to take out money or make a payment and cannot do so.
“We don’t see how it can ever be in someone’s interests to deprive them of the means of putting food on the table for themselves and their families, or of paying urgent bills like rent or mortgage, thus putting them in danger of eviction or re-possession.” said Keith.
A problem set to rise
Currently, it is estimated that the problem affects about 2% of bank customers, but if interest rates rise that number could shoot up, and those customers who are just about coping now could see themselves in difficulties very quickly. In addition, banks are still pushing their customers to have as many financial products with them as possible, even offering specials deals on mortgages for customers with current accounts.
A spokesperson for debt comparison website; Scottishrustdeed.co.uk, said: “The Lending Standards Board introduced minimum standards in May covering the use of set-off. The standards stipulate that banks must make sure an individual’s income is to be used for priority debts first then non-priority debts. Priority debts include those where non-payment can lead to the loss of the customer’s home, utility supply and other essential services. If what CAS reports is true, clearly the introduction of these standards have made no difference at all.”
How to avoid falling into the trap of off-set
“It’s easy to end up with several different financial products with one bank without realising,” explained the spokesperson. “If you are having financial problems and considering a form of debt help in scotland, the first thing to do is make sure that you have your current account with a different provider than your mortgage, credit card or loans. This way, your salary and any benefits you receive will not be taken by your bank to off-set against your debts if you fall into arrears.”
But what happens if the bank has already used its right to off-set and transferred your money? “Even if the bank has taken your money already, you need to ring and speak to them about a reasonable repayment agreement as soon as possible and switch your current account so they can’t off-set the money in it next time.”
“Although the bank does have the right to off-set, the FOS stipulates the bank must treat its customers fairly, which means making sure you have been given sufficient opportunity to discuss the problems with them and come to a reasonable resolution. For example, it might be that the customer needs to arrange a payment plan, such as Scottish Trust Deed, before they get any further into debt. However, if this period of consultation hasn’t happened the FOS may consider the bank to have performed a type of unfair debt collection and abused its rights to set-off rights. It would probably uphold a complaint made against them.”
The issue of banks abusing their off-set rights has become such a problem that the Financial Services Authority is considering proposals to ban banks from taking funds in joint accounts or which have come from a tax credit or benefit.
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