Banks Take Unfair Advantage of Their Scottish Customers

News provided by

scottishtrustdeed.co.uk

Sep 22, 2010, 02:25 ET

CHESHIRE, England, Sept. 22 /PRNewswire/ -- One minute it is there, and the next it has gone. Your wages, your child benefit, all your money paid in to your account has suddenly vanished, but it's no good complaining to the bank. They're the ones that took it.

Vulnerable Scottish consumers across the nation are having their accounts raided without warning by unscrupulous banks abusing their right set-off to obtain credit card and loans arrears payments. Citizens Advice Scotland (CAS) has recently reported an 80 per cent increase in the number of queries regarding set-off in the last four years. This is likely the result of lenders stepping up their selling efforts in the past few years, with the result that people end up with loans and credit cards with the same institution that holds their current account. But problems arise when a customer finds it hard to maintain their debt payments and falls behind. Using the rights of off-set, lenders transfer funds from their current account to pay off the arrears without warning. The result is spiralling debt problems and poverty, with victims struggling to meet mortgage payments and even buy food.

Keith Dryburgh, spokesman for CAS, said: "By unilaterally using the right of off-set, 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

Transferring funds from current or savings accounts to pay an individual's credit card or loan arrears without their permission is a perfectly legal thing for a bank to do. Many banks claim off-set helps individuals tackle their debts and is in their best interests. However, as many banks don't give any warning before they perform an off-set transfer, many people only find out what has happened when they try and take out money or make a payment cannot do so. That, says Keith, is the best indication that only banks benefit from the move.

"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, and thus putting them in danger of eviction or re-possession," said Keith.

A problem that is set to rise

Off-set transfers only affect about 2% of bank customers at the moment, but the future looks bleak for many more when interest rates will inevitably rise and those customers who are just about coping will fall into difficulties very quickly. Yet against this backdrop, banks are still continuing to push 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; Scottishtrustdeed.co.uk, commented: "The Lending Standards Board introduced minimum standards in May covering the use of the right to off-set. 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."

Can you avoid 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 are considering a form of debt help in Scotland, the first thing to do is make sure that your salary and any benefits will not be taken by your bank to off-set against your debts if you fall into arrears. Switch your current account to a different provider than your mortgage, credit card or loans as quickly as possible. If the bank has taken your money already ring and speak to them as soon as possible about a reasonable repayment agreement."

The spokesperson added; "Although the bank does have the right to off-set, the FOS stipulates the bank must treat its customers fairly. This 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 the only way to tackle your debts is decisive action like a Scottish Trust Deed, which requires a consultation with a financial professional such as a chartered accountant, or an Insolvency Practitioner. If you haven't been given the opportunity to discuss the problem with someone, the FOS could take the view that the bank has performed a type of debt collection and abused its rights to set-off rights. You may even be able to get some of your money back."

Hope for the future

"This would be an incredibly welcome move, but still doesn't go far enough to protect vulnerable consumers. I would like to see off-set rights banned completely or at the very least have a cap imposed on the amount that can be transferred within a set time period," concluded the spokesperson.

The Financial Services Authority has recently announced that it is considering a proposal that would see off-set rights banned where there are joint accounts or where funds have come from a tax credit or benefit.