While I was debt advisor I received two calls in as many days from clients whose entire monthly wage had been seized by their respective banks.
In both cases these clients had been told to open a new bank account but hadn’t, thinking “it wouldn’t happen to me”.
The truth is that it did happen to them and I remember hearing that fear in their voices when they realised that none of their bills would be paid that month, and that they also had no money for food, petrol or anything.
In both cases we managed to negotiate with the banks to return some of the money for essential spending and priority bills, but this isn’t always the case and this negotiation can take days.
Often the client will have to visit their local bank branch with an income and expenditure budget to fax to the head office. Clients might cringe with embarrassment at having to explain their situation to bank staff over and over again.
It would have been much less painful if they had just opened a new bank account.
You’re loyal to your bank…
When you have debts with your bank the first thing StepChange Debt Charity advises clients to do is to open a new basic account with an unconnected bank.
Sometimes clients are sentimental or loyal to their bank and even to their local branch. They don’t like the idea of opening a new bank account with another ‘strange’ bank.
Sometimes clients don’t like the idea of swapping to another bank account because of the hassle involved of cancelling all those direct debts or informing work of a change to their bank details for their payroll. Sometimes they just want to retain their debit card and not swap to an Electron debit card.
…but will your bank be loyal to you?
However it’s the clients who don’t swap their accounts that can quickly wind up in trouble.
You might be loyal to your bank but if you owe your bank on a credit card, loan or overdraft and you break that agreement by making reduced payments or entering a debt management plan you might find that your bank isn’t so loyal to you.
The right of offset means that banks are completely within their rights to take this money as offset on other debts you owe them. That’s why StepChange Debt Charity always advise to swap to a safe basic bank account when it’s required.
Basic bank account information
It’s sometimes possible that a bank account might not be the solution when you have creditors connected to every bank. In these cases you may want to consider alternatives such as a Post Office account or a credit union account. The most important thing is to not get caught in the ‘right of offset’ trap.
But the basic message is this: with banks swapping ownership all the time now, it’s hard to tell which banks are connected. Stick to StepChange Debt Charity advice as we’ll make sure your money is safe with the correct financial institution.
Update 02/04: We have also blogged about this topic for lovemoney.com: Right of offset: how the bank can take all of your wages