The Right to Offset - Why you should avoid debts with your Bank.
If you have debts with your bank, they can take money from you, whether you can afford it or not.
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It is not an ideal situation to have debts with your bank. Consider the following scenario.
- You are having trouble making loan and other credit repayments and;
- One or more of these debt is with your current banks (or one of its partners/subsidiaries)
- Your wages are paid into the same bank,
In this situation, your bank will take whatever money is due to them regardless of your other credit commitments. This is called the "Right to Offset" This effectively means they can take monies from your current account (without your permission) to bring the loan or credit card repayments up to date. This is perfectly lawful and does happen.
Why you need a new bank account.
If you own money to the company (bank) your wages are paid directly to, you (or ourselves) are not able to negotiate a reduced affordable repayment schedule as, to do this, all creditor must be treated equally. If one creditor has the power to take whatever payments are due to them, regardless of you ability to pay, then that puts them at an advantage over the others.
Therefore when entering an IVA or debt management programme, and one of your creditors is your bank, it is essential you open a new bank account as a safe haven for you money. This puts you back in control.
Bank Charges
Until recently, banks were allowed to charge whatever they like for bounce cheques, going overdrawn etc. However, it is unlawful for anyone to 'fine' someone else in this way. Therefore banks (or anyone else) are only allowed to apply charges that reflect their own costs.
Basic Bank Accounts
By law, all banks must off a basic bank account, which allows for most banking facilities without the ability for you to get into debt.
We advise you open a basic bank account (rather than a current account) for 2 reasons:
- You can't get further into debt if there are no credit facilities.
- Bad credit will not be a barrier to opening a basic account.
Features typical of acids bank accounts are:
- Allows you to receive money and pay bills – but won’t usually let you
overdraw by more than £10 if at all. - Can be a stepping stone to a full current account.
- Offers a cash card, and direct debits.
- Some banks also offer a debit card and payment by standing order.
- Others offer a linked savings account to help you budget. This means you
can keep some of your money in your savings account until you need to
transfer it over to pay a bill.
Banks view a bank account as just one of many products they offer to make money. When you go into debt, they make money. Therefore, the sales people in the bank are never keen to push basic accounts. Often you have to specifically ask for one. By law, they must offer such an account, but are under no obligation to promote it.
The FSA (financial services authority) maintain a useful fact sheet which describes the basic accounts offered by all the major banks and building societies.
see FSA Basic Bank account information (opens PDF document).
Can't find what you're looking for here ? Try:-Bankruptcy Alternatives
Debts over £15K ? An IVA maybe the solution for you. upto 70% of all Debts written off.
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See Also Abacus Debt Advice- Bad Debt Advice
This material is for general information and only constitutes advice in the broadest of terms. You should not rely on this information to make any decisions. Call our advisors on 0800 043 2444 for professional advice for your own particular situation.