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Banks causing additional debt problems for customers

High Street banks are causing additional debt problems for their customers and according to the Citizens Advice Bureau, leaving people in “dire poverty”.

Citizens Advice say that there has been an 80 per cent rise in enquiries from people regarding their bank transferring money from one account to pay off another bill, on an overdue credit card payment, for example. This is known as ‘setting off’ and the banks do not have to tell customers before moving their money in this way as long as the accounts belong to the same person.

The banks say that this can be a useful service for many people because it will save interest and late payment charges but for others who are already struggling to keep up with debt repayments it can cause additional financial hardship.

John from South London has been affected by “setting off”, he said: “It’s devastating, it means I go on a forced diet. I have no money for food, let alone for other essentials like washing materials.”

John says that his bank transferred money from his current account to pay towards his £4,000 credit card debt at least 4 times and only told him after the transfers had happened.

Because John relies on housing benefit and job Seeker’s Allowance for his income, after paying his rent he was left with only £3 a day to live on.

Sue Edwards from Citizens Advice said “It’s actually leaving people in dire poverty”. Because banning this process would need legislation it would be difficult to achieve, although Sue Edwards would like to see a complete ban.  Covering basic living costs by leaving a minimum of £1,000 in customer’s current accounts is something Sue Edwards is asking banks to consider.

The Financial Services Authority is planning new guidance and regulation for the banks “setting-off” process. Recommendations include not taking money from joint accounts or taking benefit payments or tax credits.

Craig Gedey Marketing Manager at www.debtadvisoryline.co.uk said: “In the last four years many banks have been consolidated into larger groups for example Abbey is now Santander which owns Bradford and Bingley along with Alliance and Leicester. Lloyds Banking Group consists of Lloyds TSB, Halifax, Bank of Scotland & Cheltenham and Gloucester.”

“I think that this is the cause of the recent increase in concerned customers. If people on low incomes are hit by more than one “setting-off” incident it could easily and very quickly develop into a serious debt problem.”

“Here at the Debt Advisory Line, we are fully committed to our customer’s financial well being. We are efficient, ethical and transparent in dealing with customers and creditors. We can help customers with our award winning Debt Management Plans”

Eric Leenders from the British Bankers’ Association (BBA) said: “It can be a big challenge for people. The onus is on the banks to make sure they treat individuals sympathetically and positively.”

“Banks should make sure there’s sufficient left for reasonable living expenses.”