Citizens Advice has welcomed many of the Government’s initiatives as outlined in the recently published financial regulation White Paper.

The Citizens Advice service – a network of independent charities that helps people resolve their money, legal and other problems by providing information and advice and by influencing policymakers – applauds plans to invest in financial education as a way of coping with the impact of the recession on many communities.

Citizens Advice Chief Executive David Harker said:
“Sessions with tips on how to budget, borrow and save creates more savvy consumers and helps people to help themselves.”

It also strongly welcomed the white paper’s determination to protect consumers more effectively from financial institutions, many of whom are not regulated as thoroughly as they might be.

Mr Harker added:
“We welcome a review of mortgage lending and the regulation of second-charge mortgages, where we would like to see a single regulatory regime that builds on the best elements of both the Consumer Credit Act and Financial Services and Markets Act.”

Citizens Advice also agreed that a speedy resolution to the bank charges debacle, still proceeding slowly through the courts, would be in the best interest of both the banks and the consumer. Mr Harker was keen to point out that banks should not be allowed to almost ignore their own codes of conduct when it came charging those in debt more for their banking services.

It also had praise for the Government’s plan to encourage the introduction of more accessible financial products.

Citizens Advice is very active in financial matters and has expanded its Financial Skills for Life financial capability programme which now reaches over 100,000 consumers a year. It operates via 200 bureaux and leads a national network of 14 regional capability forums. The programme is supported by the Prudential, and receives substantial support for associated programmes from a range of funders including Barclaycard, Nationwide Building Society and the Bank of America Foundation.

Guest Article by Neil Camp

Financial watchdogs are warning that banks can literally plunder their customer’s bank accounts to settle unpaid bills in other parts of their empire.

Stories are emerging of people hitting financial trouble, not paying their unsecured commitments (mostly credit cards and loans) and keeping their money in their current, or saving accounts for their secured loans such as mortgages. And, unbeknown to the customer, the bank can legally come along and use the money sitting in the current, or savings account, to pay a missed credit card bill, leaving the customer vulnerable to a missed mortgage payment.

And all this is quite legal, going under the term ‘setting off.’ Many will be surprised to hear that banks are perfectly entitled to ‘Set-Off’, or combine accounts, if they think fit. The ‘Set-Off’ clause is written into many loan contracts, and account terms and conditions, and even if it isn’t, then a bank may still have to the right to take such action.

So, for people facing trouble, the advice is to use two completely separate financial institutions in which to hold a current and a savings account. This way, a bank will not be able to play around with a person’s accounts, balancing the books without recourse to their customers’ wishes.

There is an obscure guideline that banks have to let you know if they decide to take such action, especially if the accounts are in joint names, if it’s a swap between different companies within the same group, or involving business accounts. But people shouldn’t rely on this and in the case of a simple current and savings bank account, the bank can seemingly act without any notice at all.

And the banks should certainly not go ahead with such an action if, for some reason, the account and its balance is in dispute. Nor can the bank say grab the whole amount outstanding on the loan, only the amount overdue, but the rules seem blurred in this area. The banks certainly should tell you after they have taken the money from an account to set-of against others, but there’s no rule as to when they should let the customer know.

The Citizens Advice Bureau has reported that there is growing evidence that this Set-Off rule is being increasingly used by banks. Set-of enquiries have risen by a considerable 25% in the past couple of years.

What worries some in the consumer watchdog institutions, is that the banks are going to be get more and more aggressive with how they use the Set-Off rule, with some complaining that this provision gives them carte blanche to unfairly meddle in their customers’ accounts for their own benefit.

For example, it’s predicted that a bank could technically reduce a customer’s account credit card limit by say £200, then use money in the customer’s current account to make good the difference they have just created. An alarming prospect for many.

Of course, given the economic climate, banks should be more sympathetic to their customer’s problems and should not use ‘Set-Off’ without proper consideration of the effects. And people who are being affected, are being strongly advised to complain in writing to their banks, or inform the Financial Ombudsman Service.

Guest Article by Neil Camp