Live Better Blog: ‘Setting off’ – what it means for your finances.

Sometimes our finances can get the better of us. Whether we’ve taken on more than we can reasonably afford, or have been faced with a change in personal circumstances, such as a loss of income, it’s easy to see how debts can accrue in a short amount of time.

What you may not know is that your bank could be making this worse if you hold more than one account with them…

Let’s say you have a debt with your current bank account provider, such as a loan or credit card. If you miss a payment and it becomes overdue, your bank is legally allowed to take money from your current account or savings account without your permission to cover your overdue payment.

This process is known as ‘setting off’, and whilst it doesn’t happen frequently, those who are struggling financially must be wary, as it could initiate a debt spiral.

How to prevent ‘setting off’.

Banks have an automatic right to use this procedure, and it’s not always necessary to include it in their terms and conditions.

The best thing to do to avoid your bank ‘setting off’ would be to keep your day to day banking and saving accounts completely separate from your debts.

Opening a new current account with a bank you don’t owe money to is usually much easier than moving debts around. This will give you a fresh start, and means that your money is safe month in, month out. Some banks offer switching deals, which may offer you cashback simply for opening an account with them. It’s worth a look.

Once your earnings are going into your new account, and the payments being made from that account are for your living expenses and priority debts, you’ll be in a much stronger financial position.

There are rules.

If your bank is looking to take money from you in order to settle overdue payments, first it must:

Check if you have, or are heading into, financial difficulties. If you are, enough money should be left in your account to cover priority debts and reasonable day-to-day living expenses.

Check if your income mainly comes from state benefits, or if expenditure is needed for certain purposes such as healthcare. Banks aren’t legally allowed to take any income or benefits that are intended for a third party, such as Child Benefit or Carer’s Allowance.

Let you know at least 14 days before they plan to take money from your account for the first time. However, after the first occasion your bank can continue to take money from your account on a monthly basis, but they have to provide you with a full breakdown of what they took and when within five working days of taking it out.

If you don’t think your bank has taken the rules into consideration and still takes money from your account, you should get in touch with them straight away, explain your situation, and ask for the money back. As long as you can show that you’re in financial difficulty, your bank should provide you with a refund, or at least a partial refund.

Banks should give its customers a reasonable chance to sort out any overdue payments whilst in financial difficulty, and especially during the ongoing COVID-19 pandemic, so getting in touch to discuss this is critical to see how is best to get your payments back on track.

If you’ve attempted to make contact with your bank but they have been unhelpful, you can always make a complaint to the Financial Ombudsman Service – the official independent service for settling disputes between financial companies and their customers.

It’s completely free to use, and although you won’t be able to challenge your bank ‘setting off’ (as it’s a legal right), the Ombudsman will look to see if you’ve been treated fairly by your bank, or put in further financial hardship due to its actions.

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