Banks' right of set off

[snapper2020]

Hi Folks,

I understand the basic principles of a bank's right of set off, especially in the case where one bank account in my own sole name, has a credit balance and this is used to repay say, a credit card's outstanding payments.

 

However, can anyone advise on the following please:

 

1) Can an overdraft facility be used to claim set off? For example, if there is an overdraft facility on a personal account in my sole name and I reduce that to zero and ask to close the account, can the bank use that money as set off; ie bring the OD back up to its limit again? And in effect not close the account as requested.

 

2) In the case of a joint account that has an overdraft limit, if money is paid into that to reduce that OD to say zero, can the bank then set off that OD as above against one party's (disputed) credit card debt?

 

In the case of a joint account, both parties would certainly be jointly and severally liable for the actual overdraft itself. And I would expect that in order to close the account, this would need to be repaid. But setting off the money paid in to close that account against say a credit card in my own sole name, would make the other party in effect, a guarantor of my own personal debt?

 

I would expect a right of set off to only apply for any account in my sole name and only apply to a credit balance. And for any joint liability to be restricted to that of the joint account only.

I have a personal account with one bank and a joint account with my wife, both of which at present have OD's on them, but we would like to close both accounts in due course.

I currently have CCA disputes with both banks and in view of the banks' general behavior over CCA matters etc. it would helpful to establish the correct legal position here.

[slick132]

Hi Snapper,

 

This issue has come up before - about whether a bank can set off using an overdraft.

 

The FSA guidance wasn't very clear but my interpretation was that the bank can use a credit balance from one a/c to settle a debt owing on another a/c.

 

They didn't address whether a bank could use an existing authorised overdraft .

I can't find the item just now but the FSA site is here - Home page : CFEB Moneymadeclear

 

[enamae]

Some information on Banks' right of set off

 

 

banking: firms' right of 'set off'

 

 

enamae

[slick132]

Good link Enamae.

 

It gives examples about a/c's in joint names too.

 

[oilyrag]

Hi Guys

 

One of our issues is exactly this and we are advised that potentially it is unlawful for a bank or finance house (an institution) to increase ANY debt (which is what an overdraft is in reality) to pay off another for example a credit card payment. However it also seems to be a transgression of the Banking code of practice if you look in the very small print of your bank account terms and conditions and I have not found it yet but we were also told that even the weak knee'd OFT have ruled against such practices in their guidance for worthiness to hold credit licences.

 

It might be worth a bit of digging around.

 

best regards

oilyrag.

[snapper2020]

Hi Slick, Oilyrag and Enamae,

Thanks for the replies and yes enamae, I had already found the link you mentioned. However this is dated 2004 and I wondered if there had been any further update or examples in relation to CCA stuff.

 

As you say OR, it would seem to be inappropriate for a bank to use an overdraft facility for set off. Although the right to draw against this has been given to the borrower, as you say it is effectively increasing one's debt and this option should only be activated by that person.

 

We'l try closing the joint account once a Barclays loan has been cleared and see what happens. And request written confirmation that the funds will be used purely to repay the OD, charges and to close the account.

[slick132]

The bank should only use the right to set off if the credit card a/c is delinquent, ie payments are late or have been missed.

 

It is not enough that the a/c is simply in dispute for some reason. This doesn't entitle the bank to take funds as and how they wish.

 

Also, you may consider that, because of a dispute, the bank should take no collection action. But we have seen the bank use set off many times even when the a/c is in dispute.

 

Also, depending on the nature of the dispute, the bank may feel it has fulfilled it's obligations imposed by CCA1974. There is still ongoing debate about how the banks tend to respond to CCA requests.

[snapper2020]

Hi Slick,

The cards are well in dispute and no payments have been made for a long time; we are past all the DCA's stuff too now. I have only ever rec'd all the usual BC replies to CCA and Subject Access requests; it's gone quiet now - for the moment anyway!