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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 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 is at risk. This is why we recommend you always use a bank account with a company 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 is up to date
  4. They’ve warned you clearly in advance in 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

Once a 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 with your name on. 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, try to make sure you’re not using a bank account with any of your current creditors. This may mean opening a new basic bank account with a bank not linked to any of your debts.

If you can’t change bank account straight away, or if it’ll take you some time to arrange for your wages or benefits to  be paid into your new account, explain to your existing bank that you’re in financial difficulties. Once you’ve told them this, they have to take it into account when deciding whether to use set-off.

If you live in England or Wales, you could use your ‘first right of appropriation’ to prevent the bank using their right of set-off. This means writing to your bank before your wages or benefits are paid in, listing or ‘earmarking’ what the money is going to be used for.

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.