Right to Set Off
If you have a bank account, most people tend to use the same bank for their other financial needs, such as credit cards, loans and mortgages. This is all well and good, and makes things much easier. However, what happens if you you don’t repay your loan or credit card bill?
The bank has the right to simply take the money from your main bank account to repay one of your other accounts. This is called the right to set off (or combine accounts).
Although most banks won’t actually do this, it is definitely something worth bearing in mind if you are struggling with debt. Whilst setting off sounds similar to theft (if someone else were to take money from your account without your permission, you’d be furious), it’s something that is covered in a lot of terms and conditions when you set up your account. E.g.
The Bank may, without notice, set-off a debit balance, or debit interest, on an account against any account with a credit balance or credit interest held by the same account holder.
Although remember, it doesn’t actually NEED to be in your T&Cs for the bank to be able to set off.
Conditions for Right to Set Off
Certain conditions must be met before the firm can exercise its right of “set off”.
- the account from which the firm transfers funds must be held by the customer who owes the firm money.
- the account from which the firm transfers the money – and the account from which the money would otherwise have come – must both be held with the same firm.
- the account from which the firm transfers funds – and the account from which the money would otherwise have come – must both be held in the same capacity by the customer concerned. So, for example, if Mrs C holds a savings account in her capacity as treasurer of a local society, the firm cannot take money from that account to pay Mrs C’s personal credit card bill that she normally pays from the current account she holds in a personal capacity.
- the debt must be due and payable. For example, if a customer misses making a loan payment, then (at least until it calls in the loan) the firm can take only the missed payment – not the balance of the loan.
If a bank or building is planning to exercise its right to set off, it is unlikely to warn you, as giving you a warning might make you move your account, and they wouldn’t want you to do this. Therefore, it may be a good idea, if you are in debt, to move your main account another company so that they cannot set off your account. If you are struggling with debt, our trained advisers can help you with this.