Banks leave some customers in 'dire poverty'

Credit cards
Image caption 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.

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