Right of offset: how the bank can take all of your wages
Right of offset is a little known legal instrument which gives banks the right to take what you owe them directly from your pay cheque.
For a lot of people, the last week of the month means one thing: payday. But what would happen if you tried to withdraw money only to find that the bank had requisitioned all of your wages? Think about the implications: no money for paying the bills, food, fuel, anything.
It’s quite a common occurrence for our debt advisors to receive calls from clients whose entire monthly wage had been seized by their bank. Our debt advisors can recall hearing the fear in clients’ voices as they realise that they’re penniless for a whole month. They were hit by the “right of offset”.
Negotiating with the bank
The right of offset is a quite simple, but far-reaching, rule. If you have an unsecured debt with a bank, like a credit card or personal loan, and have missed payments, the bank can take these payments out of your bank account without telling you.
In the cases mentioned above, these clients had been advised by us to open a new bank account to avoid this happening. However some debt management plan clients don’t take the advice, thinking it won't happen to them.
In many cases we managed to negotiate with the bank to return some of the client’s money for essential spending and priority bills, but this isn’t always the case and this negotiation can take days.
Often the clients will have to visit their local bank branch with an income and expenditure budget to fax to Head Office. Clients might cringe with embarrassment at having to explain their situation to bank staff over and over again.
It would have been much less painful if they had just opened a new bank account, but unfortunately they didn’t.
You’re loyal to your bank…
When you have debts with your bank the first thing CCCS advises you to do is to open a new, unconnected basic account, somewhere completely separate from any other financial institution associated with your bank.
Sometimes clients are sentimental or loyal to their bank and even to their local branch. They don’t like the idea of opening a new bank account with another ‘strange’ bank.
Sometimes clients don’t like the idea of swapping to another bank account because of the hassle involved of cancelling all those direct debts or informing work of a change to their bank details for the payroll. Sometimes they just want to retain their debit card and not swap to an Electron debit card.
However, we find it’s the clients who don’t swap their accounts that can quickly wind up in trouble.
Loyalty can lead nowhere
You might be loyal to your bank but if you’ve got credit card debt, a loan or overdraft with the same bank, and you break that agreement by making reduced payments or entering a debt management plan, you might find that your bank isn’t so loyal to you.
The right of offset means that banks are completely within their rights to take this money as ‘offset’ on other debts you owe them. That’s why CCCS always advises to swap to a safe basic bank account as soon as possible, to avoid any issues.
Basic bank account information
It’s sometimes possible that a new basic bank account might not be the best solution when you have creditors connected to every banking group; with bank mergers of the past few years, it’s even harder to tell which banks are connected. In these cases you may want to consider alternatives such as a Post Office or credit union account.
The most important thing is to not get caught in the ‘right of offset’ trap. Grab some CCCS advice as we’ll make sure your money is with the correct financial institution.
If you have debts with your current bank, and you’re struggling to make ends meet, you should consider swapping to a new account after taking advice from us. The first place to start is our online debt counselling service CCCS Debt Remedy.