Consumers beware - Do not bank where you have got debts
Anyone who has credit cards, loans or mortgages with their banks or savings provider needs to be aware of the risk of what is known as "setting off".
Setting off actually means that if you have a debt with the bank they can use cash in an account you also hold with them to pay off the debt without asking your permission or giving you any warning.
This practice has increased by 25% over the last 2 years and with the credit crunch hitting everyone hard the thought that a bank can take your money without asking is a serious issue. For those of you that live, like many do, having just enough money each month to pay the priority bills and juggling your finances in order to make ends meet, the prospect of the bank taking money that you are not expecting could leave you in financial hardship and unable to pay your priority bills eg your mortgage.
The last thing you want is to be defaulting on your mortgage, but for some, this is a very real scenario.
Prepare, prepare, prepare
Banks have an automatic right to set-off or combine accounts in order to pay off other debts you have with them. However they should notify you if they intend to extend their automatic right, eg moving money between organisations in their group or from joint accounts or from business to private accounts.
If you have surplus funds or savings and ongoing debts you should move them to a safe place in order to stop this from happening to you.
If you do fall behind on credit card or loan repayments contact your bank immediately to see if you can make an arrangement in order to rectify this situation. The quicker you contact the bank, the less chance you have of them taking your money without your permission.
If the banks have taken money out of your account without your permission and subsequently left you in financial hardship and unable to pay priority bills eg rent or mortgages you should complain to your bank. If the bank fails to deal with your complaint satisfactorily you should write to the Financial Ombudsman Service whose job it is to adjudicate on problems between banks and customers.
You should be aware that you can only challenge the impact of setting off eg whether you feel you have been treated fairly or put in hardship due to it.