Banks free to 'dip into' customers' accounts
BANKS will continue to be able to dip into customers' savings accounts if they miss payments on a credit card or hire purchase deal with the same lender.
The move to allow the controversial practice known as "offsetting" comes despite tough new rules being proposed for the financial sector by the Central Bank.
However, Financial Regulator Matthew Elderfield has proposed that a customer who will have money taken from their savings without their permission will have to be given three months' notice about this.
The practice of banks dipping into consumers' savings accounts when other bills go unpaid drew widespread criticism when it was first revealed by this newspaper.
During the summer, Bank of Ireland was the second bank to admit it dipped into consumers' savings accounts in certain circumstances if payments were missed on loans or hire-purchase repayments.
AIB had earlier admitted that it engaged in offsetting. Other banks are known to do it, but have not admitted the practice.
Bank of Ireland admitted that the terms and conditions in its accounts, other than mortgage accounts, allowed it to "offset outstanding balances against other accounts".
Now the Central Bank has proposed that a bank will have to give three months' notice if it wants to "offset credit balances in other accounts that are in credit in order to repay debts arising on loan accounts".
The proposed change forms part of a revised consumer protection code, a statutory rule book that sets out how banks and other finance houses are to treat consumers.
It is also proposed that banks will not be able to shut down a consumer's current account if arrears build up on an overdraft.
Consumers have found themselves without a current account after they were told by their bank it no longer wanted their business and other banks then refused to accept their custom. Now the regulator has proposed that a bank will not be able to close a current account without the consumer's consent.
"It is our view that where a consumer is operating a current account but is experiencing arrears on a credit facility attached to that account, that consumer should not be denied access to the ordinary facilities of a current account," said the Central Bank's assistant director general Bernard Sheridan.
The Central Bank is seeking views on the proposed amendments to the code by January 10.