6 September 2010 Last updated at 08:35 ET

Banks leave some customers in 'dire poverty'

By Brian Milligan Business reporter, BBC News

Setting off typically sees banks move between £100 and £200, usually to pay off a credit card account

High Street banks have been accused of leaving some customers in "dire poverty" after taking money out of their accounts without permission.

Banks can move cash between different accounts belonging to the same person, and only have to tell them afterwards.

The practice, known as "setting off", typically involves banks moving money from a current account to pay off a credit card account which is overdrawn.

Citizens Advice says it has seen an 80% rise in inquiries about such transfers.

It is not illegal for banks to move money in this way. They only have to tell the customer after they have done it.

"Setting off" typically involves banks moving sums of between £100 and £200, usually to pay off a credit card account.

For many people that can actually be helpful, as it will save them interest charges.

But for others, particularly those who receive benefits, it can cause serious hardship.

£3 a day

John Gates, from Brixton in south London, has a £4,000 debt on his credit card.

He relies on housing benefit and Job Seeker's Allowance for his income.

On at least four occasions his bank took money out of his current account to put towards the credit card debt. It only informed him afterwards.

After paying for his rent, John says that left him with just £3 a day to live on.

"It's devastating," he says. "It means I go on a forced diet. I have no money for food, let alone for other essentials like washing materials."

Another couple, from Dundee, told the BBC that they were left without enough money to pay for their baby's nappies after their bank also transferred money to a credit card account without their knowledge.

The couple agreed to be interviewed, until their bank apparently offered them a £1,000 payment if they agreed to remain silent.

Bank consolidation

Citizens Advice says such cases are not rare. "It's actually leaving people in dire poverty," Sue Edwards from the service told the BBC.

Up to 2% of all bank customers are affected by set-off payments, and the practice has increased markedly in the last four years.

That is partly because of the consolidation of banks, so that where customers used to have accounts in separate banks, they now find those accounts come under a single new owner.

The Lloyd's Banking Group includes Halifax and Bank of Scotland, for example, while RBS includes Natwest.

Sue Edwards says she would ideally like to see the whole practice banned, but because that would require legislation, it would be difficult to achieve.

In the meantime she is asking banks to leave at least £1,000 in people's accounts, to cover basic living costs.

"It wouldn't help everybody," she says, "but it would help more people than at present."

'Beneficial' practice

Banks say they are well aware of the problem.

"It can be a big challenge for people," admits Eric Leenders from the British Bankers' Association (BBA).

But he also points out that the practice can be beneficial to customers who have simply forgotten to make a payment.

Such customers could avoid an unarranged overdraft, or arrears on a loan or mortgage.

And he rejects the idea of leaving a minimum of £1,000 in customers' accounts.

"It would be difficult to say a specific amount," he says.

But after the BBA published extra guidance to the lending code in March this year, Eric Leenders is promising that banks will be more considerate towards customers.

"The onus is on the banks to make sure they treat individuals sympathetically and positively," he says. "Banks should make sure there's sufficient left for reasonable living expenses."

The Financial Services Authority, the banking regulator, is currently consulting on its own new guidance on set-off practice.

Among its planned recommendations, it says money should not be taken from joint accounts or where the cash involved has come from a benefit payment or a tax credit.

Your comments

The same happened to me. My bank took out money from an account to pay for my overdue credit card payment, thus my account is overdrawn and they have charged an overdue fee of £15 per day. Is this robbery?

Irene, Birmingham

I used to work for a bank in Liverpool several years ago on their "Rights to set off team" - a job I felt was morally objectionable. I can't speak for other companies but during my time there I found their attitude towards those customers in need at best hostile. I can't comment on current policy but they would often clear large balances as long as there was £100 remaining in the customers current account as they deemed this amount as acceptable to live on!

Matt, Widnes

About seven or eight years ago we were going through a rough patch financially after we had moved house and our second child was born. Our bank moved money between accounts in our name to cover a credit card debt. What was particularity bad was that the account they took money from was our oldest sons savings account. The account was in his name but as he was only a young child my wife was listed as a trustee so they said they could take the money. Based on this experience I would never have savings and current accounts with the same bank again.

Daniel, Braintree

My bank took over £300 from my account after I missed payments due to being on maternity leave as I was only getting £530 a month and my rent alone was £525, so I missed payments whilst I applied for housing and council tax benefit. I rang my bank and asked if they could return the money as it was for my rent and I have two children to look after, but they refused. Instead, they said I should borrow money from friends or family. I spoke to a manager and still they wouldn't refund it. Now I've started drawing all my cash out as soon as it hits my account.

Kirsty, Manchester

My bank took £177 from my account to pay an alleged historic credit card debt. This was from a basic bank account which I had only recently opened following a divorce and sale of the family home at auction. I agree that the banks should not take money from an account if there is less than a certain amount in the account, but this action caused me great hardship at the time. I had no choice but to move my account to another more sympathetic bank.

Mike, Southsea

While I was on holiday my bank took £2,000 from my personal account to place it into my business account without telling me or asking for my permission. I now have to rearrange finances in order to get it back as they put it into an overdraft and the business cannot return it immediately. It is a big whack to have to negotiate back in the form of an increased business loan, in order to get my own money back. Sure, my business needed it while I was away but really it could have caused me serious problems rather than the smaller problems I have at the moment with it.

Cory , Glasgow

I am still shocked at the time my bank bounced a cheque when there was plenty of money in our savings account. We were living abroad and there was an agreement that they would top up our current account from our savings account when necessary!

Lorna, Weymouth

My bank regularly debited nearly £200 from my current account to pay a credit card without my knowledge and without informing me afterwards. These payments were often taken from my tax credits award and left me no money for bills or for food or nappies for two children. Some days I was left with £1 in my pocket. This also had the effect of taking me over my overdraft limit when a direct debit was presented for a bill for which I subsequently incurred bank charges. The charges also took me over my overdraft limit and then they charged me again. I have incurred over £1,500 in charges due to the bank charging me charges on charges and as a result of the bank taking money from my current account to pay the credit card. I have complained and asked for the money back - they offered me £20!

Lorraine, London

My bank has been doing this to me since April 2009, despite my trying to get it sorted out. The amounts they take vary from £70 to over £200, and when my expendable income for the money amounts to less than £200, you can imagine the stress it causes. They then started taking money out of my bills account, which meant I would go overdrawn, and then end up with over £150 a month in charges. It is a vicious circle and they just do not seem to care that you cannot bring your account into credit. I think this has has a detrimental effect on my credit score too.

Beverley, Rotheram

What banks actually do is look for a way to legally take as much money from the customer as possible. With them, not you, ultimately holding the purse strings they can do as they please.

David, Middlesex

I'd be annoyed if this practice was 'banned' - from time to time my bank will do this as I have forgotten to make a credit card payment, which prevents me from getting a black mark on my credit rating and keeps me on good terms with the bank. At the very least this should be allowed at the account holder's discretion.

Tom, London