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Right of offset: Can a creditor take money from my account?

If you have debts with a bank or building society, in some exceptional cases they can use money paid into your current account to cover missed payments on other accounts. This is called the 'right of set-off'. It can also be called the 'right of offset' or 'combination of accounts'.

This means if you’re behind with payments to any loans, credit cards or overdrafts with a bank or building society, any money you pay into that bank could be at risk. To avoid any chance of this happening, we’d recommend you talk to your bank and ask if they can help.

They may offer to:

  • Separate any overdraft from your existing account
  • Help you to reduce any overdraft at an affordable rate and in line with your other debts
  • Set up a new 'clean' basic bank account for you
  • Help you to continue banking with them while you repay any debts you owe them

If your bank isn’t able to help, or you’d prefer not to stay with your current provider, we recommend setting up a new basic bank account with a provider that isn’t connected to any of your outstanding debts.

When can right of set-off be used?

A bank can’t take money from your account without your permission unless the following conditions are all met:

  1. The current account and the debt are both in your name. The position is a bit more complicated with joint debts and joint accounts – see below
  2. The current account and debt are both with the same lender. A bank can’t take money from your account for a debt with a different company
  3. The debt they’re taking money for is in arrears. They can’t take money by right of set-off if the debt repayments are up to date
  4. They’ve warned you clearly in advance that they may use right of set-off if you don’t contact them or pay back your arrears
  5. They’ve taken your individual circumstances into account and whether taking the money might cause you hardship

In practice it’s very rare for banks to exercise this right. However, if your bank has used right of set-off they must contact you to explain how you can avoid it happening again in future.

If you’ve been contacted by your bank to say they may use right of set-off, this is a sign that you’re in financial difficulties and you should get advice. We can help you.

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When can right of set-off be used with joint accounts?

If you have a joint bank account or joint debts with another person, right of set-off isn’t always allowed.

Right of set-off can be used to transfer money:

  • From your sole bank account to debt in your name only
  • From your sole bank account to a debt you have jointly with another person
  • From your joint bank account to a joint debt, as long as the same two people are named on each

But right of set-off can’t be used to transfer money:

  • From your joint account to a sole debt in your name
  • From your joint account to another joint account you have with a different person

Some banks include a clause in their terms and conditions saying that money can be transferred between any accounts under your name. This is likely to be considered an unfair term, and if a bank takes money from a joint account to pay towards your sole debt you should make a complaint.

How can I avoid right of set-off?

If you’ve fallen behind with any of your debts, contact your bank as soon as possible. Explain to them that you’re experiencing financial difficulties and find out what help they can offer you. If your bank can’t help, consider switching your account to a new basic bank account with someone you don’t owe money to.

Even if your bank can’t help, once they know you’re experiencing financial difficulties, they should give you between four to six weeks to deal with your situation. This should give you enough time to set up a new account and arrange to have your wages or benefits paid into it.

Although it’s uncommon for banks to use right of setoff, especially if they know you’re in financial difficulty, if you live in England or Wales you could use your ‘first right of appropriation’ to prevent the bank taking your income it.

This means writing to your bank before your wages or benefits are paid in and listing or ‘earmarking’ what the money is going to be used for. However, they should always leave you with enough money to cover essential bills.

Your bank can’t use right of set-off if you’ve specified that the money has been earmarked for your essential living costs or priority bills. We have an example letter to help you do this.

What can I do if right of set-off has already been used?

If money has already been taken you should contact your bank straight away and explain your circumstances. If you’re not left with enough money to cover your essential living costs or priority debts ask your bank to refund some or all of the money to your account. If the bank won’t do this, you can make a complaint.

Losing money through right of set-off is a warning sign that your debt problems are serious. We recommend you contact us for advice as soon as you can.

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