Setting – Off Debt from Your Bank/Savings Account?
If you owe money from your bank, DO you somehow expect them to automatically take money out of your savings to SET – OFF what you owe them IF you are lagging on your payments either from your credit card or loan/s?
It is a hidden danger for anyone who has credit card, loans or mortgages at the same outfit where one banks or keep the savings. Banks can, and do, use your money to repay overdue debts, which can cause financial hell. Here is a guide that could help one beat this concern:
Know your right to “set-off”
Most of the financial institutions have the right to transfer cash from your bank or savings account to pay off debts held with them. It is known as the right to set-off or to link your accounts. This may not happen to most people, but to those struggling financially must be wary and prepare.
At times, there is a term or condition in your contract allowing it to happen, such as:
“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”.
Some firms can add set-off into its contract, in banking and tax, there’s an automatic right to use the procedure. However, it is also important to check with your bank first as sometimes, we tend to overlook the terms and conditions on the contract.
End results of setting – off.
Setting-off can cause various problems – anything that affects how people budget can have long-term detrimental effects. If you’ve money set aside to pay for imminent cheques or direct debits from your accounts, but it’s taken without notice before, your payments to bounce and you to face bank charges. Technically, the rules give wide-ranging powers to banks, way beyond just sorting out unpaid accounts.
How to prevent this to happen?
Best way to avoid this is to keep your debts and bank/savings accounts in separate institutions. It is easier to move savings than debt. If you’re having financial difficulties, go for the Basic Bank Account or check with your local credit union offers current account.
Rules with Banks on setting – off.
You can check on the Lending Code, a voluntary code of practice and most banks subscribe to it, and the rules are binding.
While banks don’t directly divulge before they are going to take your money, they need to inform people of the circumstances of setting off rules.
The bank also need to look into whether you are having or heading to financial difficulties before they take money out of your bank/saving account. They should leave you with enough money to cover reasonable daily expenses and priority debts (mortgage. rent, tax, food bills).
It is always good to know your bank and lender rights, even if you are in debt.