Bank accounts: right of set-off

We sometimes hear from people who are unhappy that their bank has ‘set off’ some of their money against a debt they owe. Businesses that provide banking services have a general right to set off money in this way – even if it’s not specifically set out in an account’s terms and conditions.

But if a customer complains to us about this, we’ll look into whether you’ve used the right fairly – and whether you made it clear to your customer that you could use their money in this way.

Customers may complain that you:

• transferred money from an account in credit to reduce the debt due on a loan, credit card or other account – and did so without their permission or without telling them in advance
• ‘returned’ a payment from one account due to insufficient funds – when you could have used money from another account in credit (and avoided making a charge for the returned payment)

We also receive complaints where there was a difference in ownership between the two accounts involved in a set-off. For example, where you take money from a sole-named account to reduce the debt on a joint account – or vice versa.

We generally take the view that it’s reasonable for you to use the right of set-off, provided you use it appropriately and fairly.

We’ll look at whether:

• the amount you’ve taken is due from, and payable by, the customer
• the customer holds both accounts in the same capacity

We’ll also look at the period leading up to the set-off to see what discussion you had with your customer about repaying the outstanding debt.

We’d only expect to see that you used the right of set-off if:

• your customer wasn’t meeting the terms of the account where they owed money (for example, they’d been missing their loan repayments)
• you’d given your customer a reasonable opportunity to repay the debt (for example, by sending notices of arrears or offering them repayment options)
• you’d given your customer general information about your right of set-off (for example, in the account’s terms and conditions) at least 14 days before you used it
• it didn’t put your customer into financial difficulty

We may agree that you were entitled to use the right of set-off, but we’ll look at whether you left your customer with enough money to pay their priority debts.

If you do use the right of set-off, you must inform your customer promptly that you’ve done so, mentioning the date and amount involved.

When a customer complains to you, consider whether you’ve taken a fair amount from them and what their priority debts are. You don’t have to take the full amount they owe in one go. You could take a smaller amount and try to negotiate affordable repayment terms.

You should give your final response to complaints about payment services within 15 days. Find out more about time limits for businesses.

We only look at complaints that you've had a chance to look at first. If a customer complains and you don’t respond within the time limits or they disagree with your response, then they can come to us.

Find out more about how to resolve a complaint.

If we think you’ve used a set-off unfairly, we may tell you to restore the customer’s account to the position it would have been in had you not done so. This would depend on the individual circumstances, but could include:

• paying any interest you would have paid
• refunding any fees or charges you’ve applied 

Before you reverse a transfer, it’s important to check whether this would have an adverse effect on the account you’re transferring from, such as interest or charges on a debt owed. For example, if you reverse a transfer you made to reduce a mortgage debt, you may leave your customer in a difficult position. In these cases, we’d expect you to talk to your customer about how to put things right.

Compensation for non-financial loss

We’ll also consider whether it’s appropriate for you to pay your customer compensation for any distress or inconvenience you’ve caused them as a result of an unfair set-off. We’ll generally ask you to pay this money directly to the customer, not to use it to offset any debt.

There’s guidance on good practice in the Banking Conduct of Business Sourcebook (BCOBS 4.1.4A and BCOBS5.1.3A) in the Financial Conduct Authority Handbook.