What is the ‘right to offset’ with personal debts?

July 30, 2019

Banks and other financial institutions have an automatic right to offset the credit balances held in their customers’ bank accounts against any debt owed to the organisation by those customers.

The right to offset is used to recover debt more easily, but it can catch people out for a number of reasons. One problem is that members of the same financial group are no longer as clearly identifiable as they once were, and if you think you’re dealing with separate organisations in relation to your credit card and bank account, for instance, this isn’t necessarily the case.

How does the right to offset affect you?

If you hold a savings account or there’s a credit balance on your current account with the bank, and you also fall behind on personal loan repayments, for example, or credit card payments, you might discover that your bank has used some of your credit balances to repay the debt.

The bank should let you know before they set off one account against another, or prior to any money being transferred, but the fact remains that this practice can cause considerable disruption to your day-to-day financial arrangements in terms of paying direct debits and standing orders for regular bills.

The knock-on effect if unpaid items are returned is further bank charges, potential problems with priority creditors such as your mortgage lender or landlord, an adverse credit rating, and a spiral into further personal debt that might otherwise have been managed.

When can the bank set off personal debts?

Certain conditions must be met before the bank can use their right of offset:

  • Both accounts/financial products must be held within the same financial organisation
  • They must both be held in your name, although the issue is a little more complex if they’re in joint names
  • The personal debt repayments must have fallen into arrears
  • You’ve been warned that they might use their right to offset if the arrears aren’t repaid
  • They’ve considered your financial situation and whether using their ability to offset would cause financial hardship

How can you prevent the bank using their right of offset?

It’s advisable to communicate quickly with your bank if you’re in financial difficulty, and there’s a chance they might use their right to offset any personal debts held with them. They may be able to help by offering you an instalment plan for the arrears, for example, but there are other ways you can protect yourself.

Opening a ‘basic’ bank account with another financial institution, without an overdraft facility, can protect your money, or you may be able to use your ‘first right of appropriation’ to earmark the money intended for essential living costs.

For more information on this and other ways to deal with personal debts, call our team of experts at UK Debt. We’ll arrange a free consultation for you at one of our network of UK offices so we can quickly take action to deal with this worrying situation.

Paul Barber

Head Adviser at our Manchester Office

Tel: 0800 001 4247
Email: enquiries@ukdebt.org.uk

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