Another startling revelation by the BBC

The BBC Money Box programme has “discovered” that banks are allowed to take credit balances people hold with them to pay that person’s debts.  Quite a discovery, I wonder if Peston had anything to do with this startling revelation.

Exercising right of set-off was quite routine when I did a stint for the NatWest debt recovery office about 10 years ago.  It was an unspoken rule that we only did it when people were taking the piss – the kind of people who owed the bank 10 grand and offered to pay it off at a tenner a month but had a holiday fund, Sky TV and spent 200 quid a month on fags and booze.

Citizens Advice is asking banks not to exercise their right of set-off any more because it leaves people unable to pay their mortage and other bills.

They are quite right, it does leave them unable to pay their bills but why should a bank forego their right to claim money that’s been deposited with them to pay off a debt that the same person has with them?  If someone owes a bank money and they’ve got the means to pay all or part of that debt in another account with the bank, why is it unreasonable for the bank to expect them to do so?  It’s no different to a mortage provider having the right to reposess and sell someone’s house if they don’t pay the mortgage, they just don’t have to go through a lot of expensive hoops to get their hands on the assets.

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13 comments

  1. Gavin Ayling (8 comments) says:

    Why should the bank have first charge on the money? Surely some creditors are more ‘owed’ than others and so the bank may be taking money that should be more rightly paid to someone else first?

    What this should result in is people moving their money out of the bank they have unsecured debt with which is hardly in bank’s best interests.

  2. wonkotsane (1112 comments) says:

    Right of set-off applies even in the case of insolvency and ranks ahead of all other priority creditors, including the revenue. The bank should have the money because it’s unreasonable to expect them not to keep it when they have it. If you crashed your car and got a courtesy car, would it be reasonable to expect the repair company to give you your own car back if you refused to give them back their courtesy car?

    Banks have had this right for a long time – maybe even forever – it’s nothing new and it hasn’t caused a problem so far. It’s easy to side with the debtor and against the big faceless banks when you’ve never seen it from the other side. There are a lot of genuine cases but a sizeable proportion of debtors really do take the piss.

  3. tbrrob (24 comments) says:

    But we wouldn’t want to harm the stupid and greedy would we.

  4. wonkotsane (1112 comments) says:

    The harder we make it for them to make a profit, the more money they’re going to need off the taxpayer. Low interest rates and more regulation are going to deprive them of income.

  5. Steve (38 comments) says:

    I feel that now is exactly the WRONG time for the banks to start doing this. If our taxes for the next x years are keeping them in business now, then I think that they should be a little less willing to help themselves.

    If the population as a whole thinks that banks are going just that little bit too far (and let’s face it, they’re not that far off currently) then there will be mass defaults which the banks would not be able to control at all.

  6. axel (1214 comments) says:

    steve : the banks are owed money and the way things are that means it is our money they are getting back, it is the huge huge debt hole that is the problem, it is about time people were stopped from accruing more debt and being forced to pay some of it off.

    we need to go back to living within our means and paying off our debts, it will be nasty medicine for us all

  7. Charlie Marks (365 comments) says:

    “The harder we make it for them to make a profit, the more money they’re going to need off the taxpayer. Low interest rates and more regulation are going to deprive them of income.”

    Ah, wonko leaps to the defence of the super-rich again!

    I’m sorry, but why do we need more than one chain of banks? Seems rather wasteful to me…

    We need a National Financial Service.

  8. lfb_uk (15 comments) says:

    The Banks deserve everything they get and then some. For years they have been fleecing customers, with unlawful charges. They pay a shite interest rate on savings, whilst charging well over the odds in interest on loans. They get paid from both ends and deserve all they get.

    They are just like estate agents and politicians, full of crap and just about as useless.

  9. wonkotsane (1112 comments) says:

    Charlie, do you think a single state-owned financial service company would be run in the interests of the country or would it end up being a cash cow raped by the Treasury like ever other public utility has been run? Besides, that would be illegal under EUSSR rules.

  10. axel (1214 comments) says:

    Charlie
    Charlie
    ‘I’m sorry, but why do we need more than one chain of banks? Seems rather wasteful to me…’

    If there is no reason to work, they wont work, they will do things to suit themselves and be shite at it.

    We need competition, we need to make them work for our money.

    What about ethics? do we trust the government to be ethical? If my bank does something to piss me off, i change banks, if there is only 1 bank, are we stuck with it and i will have to set fire to bus shelters instead

  11. Charlie Marks (365 comments) says:

    Needn’t be state controlled. The NHS isn’t, not directly. Could be mutually owned by its staff and customers.

    I don’t like the way you’re quoting EU rules at me, Wonko. Turning Euro-federalist? Getting kicked out of the EU for establishing a national financial service would be two for the price of one!

    The private banks have been screwing us over for years – now the govt’s bailed them out we’re going to be screwed for a lot longer.

  12. axel (1214 comments) says:

    charlie

    would mutuially owned be like the the old building societies before they sold their souls?

    or like the credit unions?

  13. Charlie Marks (365 comments) says:

    The principles are the same.

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