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IMPORTANT - Right of Set Off - Consultation on BCOBS - respond by 6th Sept

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  • IMPORTANT - Right of Set Off - Consultation on BCOBS - respond by 6th Sept

    7
    Introduction
    In this chapter we propose amending the Banking Conduct of 7.1 Business sourcebook
    (BCOBS), to provide guidance in relation to exercising a right of set-off on retail
    consumer accounts. We are extending the guidance to make reference to set-off in
    BCOBS 4.1 (The appropriate information rule), and adding further guidance about
    using set-off in BCOBS 5.1 (Post-sale requirements). We are also consulting on a minor
    amendment to the BCOBS guidance relating to information about compensation
    arrangements. This is a minor drafting change, and not a change in policy.
    7.2 Our powers to give guidance, and the processes we must follow, are set out in
    FSMA. The relevant sections are 155 and 157. These proposals will be of relevance
    to banks, building societies and credit unions. They will also be of relevance to
    consumer groups.
    Background
    7.3 In principle, under the common law of banking, a banker has the right of set-off
    (sometimes called a right to combine accounts). This means that a bank may (but is
    not obliged to) combine an account in debit against another account in credit and be
    liable only for the balance.
    7.4 The right of set-off falls within our remit on the deposit-taking side, with the
    consumer credit aspects falling under the remit of the Office of Fair Trading (OFT).
    The Lending Code, which is a voluntary code of practice for the industry, includes
    guidance on using set-off and is monitored and enforced by the Lending Standards
    Board. We believe set-off is covered within our high level principles and rules;
    however, we think it would be helpful to set out in guidance in BCOBS what we
    expect from firms regarding their use of set-off.
    7.5 We recognised that set-off, affecting accounts within our scope, was potentially a
    concern during 2009 when we were developing the banking conduct regime. This led
    to us including a Q&A about set-off rights in the Moneymadeclear guide, Just the
    facts about your bank account.17
    17 http://www.moneymadeclear.org.uk/pdf...nk_account.pdf
    Financial Services Authority 43
    7.6 We understand that only a minority of customers are affected by set-off. Firms vary
    in the frequency of their use of set-off – some use set-off relatively often, affecting
    approximately 1–2% of all their customers, and others use set-off rarely. From
    discussions with banks and building societies we also understand that set-off is
    sometimes used in situations where some customers may regard it as a benefit, such
    as when they have missed a credit card payment in error rather than due to
    difficulties with meeting payments.
    7.7 However, we have some evidence that consumer knowledge of the right of set-off is
    low. We also have evidence that the use of set-off can be of significant detriment to
    consumers if it causes them to struggle to meet their priority payments and living
    costs. Citizens Advice Bureau (CAB) and Money Advice Trust have provided us with
    a number of recent case studies that demonstrate the negative effects that the use of
    set-off can have on consumers when it appears to have been used unfairly. In many
    of the case studies, it seems that the consumer had no knowledge of the right of
    set-off before it was used on their account. It also seems that in some instances, the
    bank or building society had not left the consumer with enough money to meet their
    priority payments and essential living costs. For example, some consumers were
    unable to pay their mortgage or rent due to their bank or building society as a result
    of set-off being applied to their accounts.
    7.8 Problems presented by use of the right of set-off appear to be on the increase.
    Citizens Advice has told us that the number of problems with set off dealt with by
    Citizens Advice Bureaux in England and Wales has increased year on year over the
    last three years. We also have evidence from some large retail banks that their use
    of set-off has increased in the last year.
    7.9 Taking the above factors into account, we have decided to consult on guidance for
    firms in relation to their right of set-off, which we think will help to clarify how
    customers should be treated fairly.
    7.10 This chapter includes proposals on adding guidance to BCOBS regarding:
    • the information that should be provided to customers before and after set-off
    is used;
    • how set-off payments should be determined; and
    • the types of accounts that set-off should not normally be used on.
    Proposed amendments
    Appropriate information
    7.11 We propose adding guidance to BCOBS 4.1 (as BCOBS 4.1.4AG(2)(a)), stating
    that, to comply with the appropriate information rule, the firm should provide an
    explanation to its retail customers of the nature and extent of the firm’s right of
    set-off in good time before the consumer is bound by the contract for the retail
    banking service. This information may be incorporated in the terms and conditions
    that apply to the contract for the retail banking service.
    44 CP10/15: Quarterly CP (July 2010)
    7.12 Having gathered questionnaire responses from a selection of firms and after
    discussing the subject with consumer agencies, we think that appropriate information
    in the context of set-off means that, as a minimum, the information should be set out
    in the account terms and conditions. This means that information about set-off
    would be provided along with other details about the rights and obligations of the
    customer, and also means that customer would have information about set-off that
    they can refer to should the need arise. We have considered whether we should go
    further by proposing that information about the right of set-off should be provided in
    the pre-contract information separately from the terms and conditions. However, we
    do not believe that doing so would provide additional benefits for most consumers.
    7.13 Our reasoning is that requiring disclosure of set-off as part of the sales process
    seems disproportionate and risks overloading consumers with too much information.
    In addition, such a proposal would not directly benefit existing account holders, and
    the impact on new account holders would be limited if set-off was applied a
    significant amount of time after the account was opened.
    Q21: Do you agree with our proposal that information
    about set-off should be provided in the account
    terms and conditions?
    Q22: Do you see a need for further information, beyond
    that set out in our proposal, to be provided about
    set-off when a customer opens an account?
    7.14 We also propose adding guidance to BCOBS 4.1 (as BCOBS 4.1.4AG(2)(b)), stating
    that where a firm knows or reasonably ought to know that the consumer is beginning
    or continuing to experience difficulties in meeting their payment obligations, the firm
    should provide general information in relation to the nature of the firm’s right of
    set-off, as well as the generic circumstances in which the firm may rely on that right,
    within a reasonable period before the firm seeks to exercise its right of set-off. This
    information may be communicated in a standard form of words and may be
    incorporated in another communication sent by the firm to the consumer.
    7.15 This does not mean the customer should be given specific notice that set-off will be
    used on their account. Instead, customers should be given general information about
    the right of set-off.
    Q23: Do you agree with our proposal for firms informing
    customers of the right of set-off when they are
    beginning or continuing to experience difficulty in
    meeting their payment obligations?
    7.16 Finally, we propose inserting guidance to BCOBS 4.1 (as BCOBS 4.1.4AG(2)(c)),
    stating that where a firm has exercised a right of set-off, it should provide prompt
    notification of this to the consumer. This notification should clearly identify the date
    that the firm exercised its right of set-off and the amount debited from the
    consumer’s account in reliance on that right.
    Financial Services Authority 45
    Q24: Do you agree with our proposal that customers
    should be promptly notified about the use of
    set-off on their account?
    Post-sale requirements
    7.17 We propose adding to the guidance in BCOBS 5.1 (Post-sale requirements),
    explaining banks’ responsibilities under Principle 6 (a firm must pay due regard to
    the interests of its customers and treat them fairly) and BCOBS 5.1.1R. As far as is
    practical, firms should review the information that is available and accessible to
    them, relating to the consumer’s account, on an individual basis, and estimate the
    amount of any ‘subsistence balance’.
    7.18 We have defined subsistence balance as any sum of money payable by a firm to a
    consumer or standing to the credit of the consumer in an account with the firm
    where that sum is needed by the consumer to meet essential living expenses or
    priority debts (whether owed to the firm or a third party).
    Essential living costs – these include costs such as housekeeping, transport, and
    health and social care payments. They will be difficult to determine in the case
    of some customers, so we think it will be sufficient for firms to make reasonable
    estimates about the amount required for a customer’s subsistence balance.
    Priority debts – where non-payment can result in consumers being imprisoned,
    losing their home or losing their essential goods and services. These include
    mortgage/rent payments, utility bills and council tax.
    Q25: Do you agree with our proposals for exercising the
    right of set-off fairly?
    Q26: Do you have any suggestions of other ways of
    exercising the right of set-off fairly?
    7.19 We also propose adding to the guidance in BCOBS 5.1, stating that firms should not
    set off as far as practicable:
    • any debt due solely from a consumer, or any debit balance on an account held in
    the sole name of a consumer, against (or with) any sum of money payable by the
    firm to that consumer and another person jointly or any credit balance on an
    account held in the joint names of that consumer and another person;
    • any debt due from, or a debit balance on an account held by, a consumer in a
    personal capacity against (or with) any sum of money payable by the firm to the
    consumer or standing to the credit of the consumer in an account held with the
    firm, where the firm knows or reasonably ought to know that:
    (i) a third party is beneficially entitled to that money or that the consumer is a
    fiduciary in respect of that money; or
    (ii) the consumer has received that money from a government department or
    local authority for a specific purpose or is under a legal obligation to a third
    party to retain and deal with that money in a particular way.
    46 CP10/15: Quarterly CP (July 2010)
    Q27: Do you agree with our proposal that firms should not
    use set-off in the types of scenarios listed above?
    7.20 We propose exempting credit unions from the proposals relating to the post-sale
    period. There is a customised statutory regime for credit unions in the Industrial
    and Provident Societies Act 1965 and Credit Unions Act 1979 – s.22 of the
    1965 Act states:
    “A registered society shall have a lien on the shares of any member for any debt due
    to the society by that member, and may set off any sum credited to the member on
    those shares in or towards the payment of that debt.”
    On the basis that the exercise of set-off for credit unions is provided for in specific
    legislation, we do not consider it to be appropriate to subject credit unions to
    our post-sale proposals. However, we propose that the guidance on providing
    appropriate information about set-off should apply, in the interests of transparency
    and enabling credit union customers to make decisions on an informed basis.
    Q28: Do you agree with our proposal to apply the guidance
    in the information requirements to credit unions, but
    exempt them from our post-sale guidance on set-off?
    7.21 As we are consulting on guidance intended to illuminate existing rules rather than
    making new rules, we do not propose a transitional period.
    Q29: Do you agree that our proposed guidance should take
    effect immediately?
    Information about compensation arrangements
    7.22 We are also using this opportunity to consult on a minor amendment to the text in
    BCOBS referring to information about compensation arrangements. BCOBS 4.1.4G
    sets out the type of information that should be provided or made available to a
    banking customer in order meet the requirements of the appropriate information rule
    (4.1.1R). With the commencement of COMP 16 on 1 January 2010, we altered the
    reference in BCOBS 4.1.4G(8), to read ‘information about compensation arrangements
    in accordance with COMP 16’. COMP 16 sets out the information about
    compensation that relevant firms must disclose, how frequently that information
    should be disclosed and the methods of communication that should be used.
    7.23 In order to clarify our expectations, and to reduce cross-references in the Handbook,
    we propose to amend 4.1.4G(8) to instead read “the terms of any compensation
    scheme if the firm cannot meet its obligations in respect of the retail banking
    service”. This does not represent a change in policy or interpretation, and there are
    therefore no additional costs or benefits associated with this clarification.
    Q30: Do you have any comments on our proposed
    amendment to BCOBS 4.1.4G(8)?
    Financial Services Authority 47
    Cost-benefit analysis
    7.24 Banks, building societies and credit unions will be affected by our proposals relating
    to set-off. We estimate up to 387 banks and building societies, which are FSA/ EEA
    authorised firms, and 494 credit unions may be affected.18
    7.25 To assess the impact on firms, we sent a questionnaire to a sample of banks and
    building societies, asking them to estimate the potential costs arising from our
    proposals. We received eight responses: six banks and two building societies.
    7.26 Respondents represent approximately 55% of the personal current account market.
    Respondents varied in the frequency of their use of set-off; some made relatively
    high numbers of set-off transactions (1–2% of all their customers were affected),
    and others used set-off rarely.
    Direct costs to the FSA
    7.27 The proposals will result in minimal incremental costs to the FSA. Supervisors will
    take account of the new guidance within their existing supervisory approach.
    Appropriate information
    Adding guidance in BCOBS regarding the information that should be provided to
    customers before and after set-off is used
    Compliance cost
    7.28 In summary, most respondents thought that significant incremental costs or benefits
    were unlikely to result from our proposals to add guidance to BCOBS regarding the
    information that should be provided to customers before and after set-off is used
    (paragraphs 7.11 – 7.16).
    7.29 Most respondents stated that they already include information about set-off in
    account terms and conditions. One respondent indicated that it does not include
    information about set-off in the account terms and conditions. For this firm and any
    other firms who are currently not including information about set-off in the account
    terms and conditions, potential costs of this proposal would be the one-off costs of
    legal review and documentation re-print. One respondent indicated that one-off
    reprinting costs could be around £30,000 per firm but noted that these costs would
    be minimal if sufficient time were given to run down stocks.
    7.30 Most respondents stated that they either do notify customers of the right of set-off
    before it is used on their account (where the customer has missed credit repayments),
    or they are planning to introduce this practice shortly. One respondent (with fewer
    than ten set-off transactions per year) commented that they only use set-off at the
    end of a banking relationship with a customer. We are following up on this to obtain
    more information. We think overall that the costs of this proposal will be minimal.
    18 This figure is calculated from the number of firms with the regulated permission for ‘deposit taking’, taken from the
    FSA’s register as of 31 March 2010.
    48 CP10/15: Quarterly CP (July 2010)
    7.31 All respondents stated that they do provide customers with prompt notification of
    set-off, and include the figure in customer statements, so again we believe the costs
    of this proposal will be minimal.
    Benefits
    7.32 Our proposed guidance on providing appropriate information about set-off in
    account terms and conditions increases transparency about set-off for all consumers
    opening accounts, as consumers will be provided with relevant information to which
    they can refer at a later date. This may help to empower some consumers and result
    in some people managing their accounts on a more informed basis.
    7.33 Firms providing information to customers about set-off when they get into payment
    difficulties could encourage some customers to contact their bank or building society
    and then work to agree a way forward.
    7.34 Some customers might be clearer about their financial position and so should be
    in a better position to organise their finances as a result of firms providing prompt
    notification of the use of set-off.
    7.35 However, based on our research on consumer behaviour in financial markets,19 we
    acknowledge that significant incremental benefits may not result from our proposals.
    The benefits will depend on the number of consumers that are likely to act on the
    information provided before and after set-off is used; this number may not be high.
    Post-sale requirements
    Adding guidance in BCOBS regarding how set-off payments should be determined
    Compliance cost
    7.36 In summary, most respondents thought that significant incremental costs were
    unlikely to result from our proposals of adding guidance in BCOBS regarding the
    post sale requirements (paragraphs 7.17 – 7.18). However, some firms will be
    affected by the proposals and thus we expect that some firms will incur costs in the
    amount of £3million to £4 million per year.
    7.37 The majority of respondents say they already consider customers on an individual
    basis, leaving them with enough money to meet their priority debts and essential
    living costs. So for these firms, we think the costs of this proposal will be minimal.
    7.38 However, the questionnaire also suggests that some firms may need to adjust their
    practices in the light of the proposed guidance, in order to proactively consider
    customers on an individual basis.
    7.39 It was indicated that a basic assessment to identify whether a customer is in payment
    difficulties, and estimate the amount needed to meet priority debts and essential living
    costs, would take around 10–12 minutes per customer. Most of this additional work
    will be done by administrator-level employees whose hourly rate has been estimated
    19 http://www.fsa.gov.uk/pubs/consumer-research/crpr69.pdf
    Financial Services Authority 49
    at £10 (i.e. average £16,000 p.a.) including a standard overhead of 30% in
    accordance with the Standard Cost Model (SCM).20 Therefore, we estimate the
    incremental cost to firms to be £1.50–2.00 per customer. Given the data obtained
    from firms’ responses to the questionnaire, we think approximately two million
    set-off transactions would be affected. So, as a result of this proposal, the overall
    costs to these firms will be in the region of £3–4 million per year. However, these
    estimates represent an upper bound for compliance costs as firms are expected to
    introduce cost efficient ways to deal with the issue.
    Benefits
    7.40 The benefit of firms leaving customers with enough money to meet their priority
    payments and essential living costs will be that some customers may avoid getting
    into more serious difficulties, due to being unable to pay their rent/mortgage and
    other key expenses. It should also result in a smaller likelihood that customers and
    any dependents will be left without enough money to live on and resort to some
    type of short-term emergency finance. Finally, it should also limit the possible
    intangible negative effects of set-off transactions (for example, the disruptive effect
    of having to unexpectedly renegotiate other payments).
    7.41 The tangible benefits are potential savings for consumers from avoiding costs associated
    with having to resort to some type of short-term emergency finance and/or being
    unable to pay their rent/mortgage and other key expenses. From the questionnaire, it
    was estimated that a typical set-off is between £100 and £200 per transaction. From an
    informal survey of short-term lenders currently active in the market, we estimate the
    average interest rate charged on short-term loans is around 300–400% per year. Thus,
    the cost of short-term lending to cover a typical set-off transaction of £100–200 will be
    between £25 and £60 per month. In addition, there are potentially other costs that a
    customer would incur due to being unable to pay their rent/mortgage and other key
    expenses. For example, mortgage arrears charges vary between £30 and £50 with an
    average arrears charge of £40 per month.21 Therefore, we estimate that a typical benefit
    of firms leaving customers with enough money to meet their priority payments and
    essential living costs will vary between £65 and £100.
    7.42 If the number of set-off transactions per year that fail to meet the required standards
    of fairness is 30,000–60,000 or more (which represents between 1.5% and 3% of
    approximately 2 million set-off transactions that would be affected), this would
    exceed the expected compliance costs resulting from these proposals (£3–4 million,
    see paragraph 7.39). Based on our supervisory experience, number of set-off
    transactions that are not currently in line with the requirements of BCOBS
    and the Principles for Businesses is likely to be at least equal to this figure.
    20 Real Assurance 2006 study on administrative burdens.
    21 See FSA CP10/2 “Mortgage Market Review: Arrears and Approved Persons”
    50 CP10/15: Quarterly CP (July 2010)
    Adding guidance to BCOBS regarding types of accounts on which set off should not
    be used
    Compliance cost
    7.43 The majority of respondents do not use set-off on any of the types of accounts we
    have identified above (paragraph 7.19). For these respondents, the costs of this
    proposal will be minimal. Some respondents do use set-off on joint accounts where
    the debt is held solely in one person’s name, and we expect these firms to incur costs.
    7.44 Respondents that do use set-off on joint accounts indicated that the incremental staff
    costs of complying with our proposed guidance would be around £1.3 million per
    year. In addition, the respondents stated that they would incur one-off costs of
    complying with our proposed guidance in the region of £15 million without giving
    further details, making it difficult to assess its reliability.
    Benefits
    7.45 Responses to the questionnaire suggest that there will be around 400,000 joint
    account affected by this. We think our proposals are in line with our requirement to
    treat banking customers fairly, which includes joint account holders. When set-off is
    used on joint accounts where the debt is held solely in one person’s name, we believe
    it may have the effect of making an account holder the guarantor of the other
    account holder’s debts, but without the information that a guarantor should usually
    be given. We believe that when set-off is used in such a scenario, it may come as a
    surprise to the account holder who has not accrued the debt. Not using set-off in
    these circumstances should enable consumers to have more confidence in their
    personal banking and more certainty over their financial affairs. Most questionnaire
    respondents either agreed with us about the benefits or simply stated that they did
    not use set off in these circumstances.
    7.46 Regarding the other types of accounts that we have identified, we think that some
    consumers may benefit from not having money taken in a set-off transaction that
    has been earmarked for essential payments such as health or social care payments, as
    inability to pay for these essential services could have serious consequences.
    Compatibility statement
    7.47 We consider that our proposals are compatible with our general duties under Section 2
    of FSMA. Our proposals are designed to meet our statutory objective of consumer
    protection, in line with the benefits identified above. Some consumers should benefit
    more widely due to increased knowledge of the right of set-off. Our more detailed
    guidance will help ensure that firms deal fairly with consumers who are in payment
    difficulties, or who are beginning to experience difficulties with meeting their payments.
    Financial Services Authority 51
    7.48 In developing our proposals, we have considered the principles of good regulation
    and are satisfied that our proposals are the most appropriate for the purposes of
    meeting our objectives for the reasons stated in the CP. In particular, we believe that
    costs we impose on the industry are proportionate to the benefits that are expected
    to result from these proposals. We do not expect the proposals in this CP to have
    any material adverse effects on competition.



    Contact
    Comments should reach us by 6 September 2010. Please send them to:
    Kirsten Jones
    Conduct Policy
    Financial Services Authority
    25 The North Colonnade
    Canary Wharf
    London
    E14 5HS
    Telephone: 020 7066 7518
    Fax 020 7066 7519
    Email: CP10_15@fsa.gov.uk
    #staysafestayhome

    Any support I provide is offered without liability, if you are unsure please seek professional legal guidance.

    Received a Court Claim? Read >>>>> First Steps

  • #2
    Re: Right of Set Off - Consultation on BCOBS - respond by 6th Sept 2010

    will have a look at this one later on as it does seem quite interesting....

    Q21 I think it should be on the back of statements rather than simply in the terms and conditions.
    Q22(see above)

    Q23 yes in spite of the fact that it may be tipping the customer off. Would they not be trying to help their customers earlier in spite of this?
    q24 see above
    Q25 Yes
    Q26 make sure that the rules are clearly displayed within branch literature and on any information supplied, ie in PIL. Furthermore, that it is done fairly and perhaps a letter sent out after the fact informing the customer of what was done and why.
    Q27 they must be certain that the funds that they extract from a joint account is for the person who owes the money and not their partner/significant other/joint account holder.
    Q28 yes agreed.
    Q29 I disagree with a non transitional period since I believe it necessary for all firms to amend leaflets and information but any period should be no longer than 6 months.
    Q30 none whatsoever
    "Family means that no one gets forgotten or left behind"
    (quote from David Ogden Stiers)

    Comment


    • #3
      Re: Right of Set Off - Consultation on BCOBS - respond by 6th Sept 2010

      Just bumping as next job Anyone any specific thoughts on this one ?

      I think we should use it to flag up the issues with common law right of appropriation as well as resolve some bug bears with between accounts/products offsetting?

      Any and all case studies welcome, your own or flag up threads from across the forums. We need to put forwards how offsetting affects people on the ground level.
      #staysafestayhome

      Any support I provide is offered without liability, if you are unsure please seek professional legal guidance.

      Received a Court Claim? Read >>>>> First Steps

      Comment


      • #4
        Re: Right of Set Off - Consultation on BCOBS - respond by 6th Sept 2010

        bump de dump de bump - anyone got any thoughts on this ?

        Chapter 7 - Page 44 of http://www.fsa.gov.uk/pubs/cp/cp10_15.pdf

        1. Do you agree with our proposal that information about set-off should be provided in the account terms and conditions?
        2. Do you see a need for further information, beyond that set out in our proposal, to be provided about set-off when a customer opens an account?
        3. Do you agree with our proposal for firms informing customers of the right of set-off when they are beginning or continuing to experience difficulty in meeting their payment obligations?
        4. Do you agree with our proposal that customers should be promptly notified about the use of set-off on their account?
        5. Do you agree with our proposals for exercising the right of set-off fairly?
        6. Do you have any suggestions of other ways of exercising the right of set-off fairly?
        7. Do you agree with our proposal that firms should not use set-off in the types of scenarios listed above?
        8. Do you agree with our proposal to apply the guidance in the information requirements to credit unions, but exempt them from our post-sale guidance on set-off?
        9. Do you agree that our proposed guidance should take effect immediately?
        10. Do you have any comments on our proposed amendment to BCOBS?
        #staysafestayhome

        Any support I provide is offered without liability, if you are unsure please seek professional legal guidance.

        Received a Court Claim? Read >>>>> First Steps

        Comment


        • #5
          Re: Right of Set Off - Consultation on BCOBS - respond by 6th Sept 2010

          Originally posted by Amethyst View Post
          bump de dump de bump - anyone got any thoughts on this ?

          Chapter 7 - Page 44 of http://www.fsa.gov.uk/pubs/cp/cp10_15.pdf

          1. Do you agree with our proposal that information about set-off should be provided in the account terms and conditions?
          Yes it should be as should the terms of when it is used with examples.
          2. Do you see a need for further information, beyond that set out in our proposal, to be provided about set-off when a customer opens an account?
          pass

          3. Do you agree with our proposal for firms informing customers of the right of set-off when they are beginning or continuing to experience difficulty in meeting their payment obligations?
          If they are experiencing difficulties then why are they not being dealt with under the Lending Code section 9. Could the Right of Set Off be used only when no contact is made after all available routes have been expended.


          4.
          Do you agree with our proposal that customers should be promptly notified about the use of set-off on their account?
          yes absolutely but if the proposal relates to Financial Hardship then section 9 should have been resorted to in the first place.

          5.
          Do you agree with our proposals for exercising the right of set-off fairly?
          yep
          6. Do you have any suggestions of other ways of exercising the right of set-off fairly?
          As a last resort
          7.
          Do you agree with our proposal that firms should not use set-off in the types of scenarios listed above?
          pass
          8. Do you agree with our proposal to apply the guidance in the information requirements to credit unions, but exempt them from our post-sale guidance on set-off?
          we need data on how much the right of set off is used by credit unions.
          9.
          Do you agree that our proposed guidance should take effect immediately?
          6 month period of transition
          10. Do you have any comments on our proposed amendment to BCOBS?

          I am sure I have answered these ones, haven't I?
          "Family means that no one gets forgotten or left behind"
          (quote from David Ogden Stiers)

          Comment


          • #6
            Re: Right of Set Off - Consultation on BCOBS - respond by 6th Sept 2010

            Yes lol, have you read the Appendices - 122 and so on. Its bloody good and gets FROA regualtioned.


            Question - to what extent are the taking of bank charges from a persons account classed as set off ?


            Originally posted by proposed changes to BCOBS
            Proposed changes to
            the Banking Conduct
            of Business sourcebook
            (BCOBS)
            Appendix 7
            Appendix 7
            BANKING: CONDUCT OF BUSINESS SOURCEBOOK (AMENDMENT NO 2)
            INSTRUMENT 2010
            Powers exercised
            A. The Financial Services Authority makes this instrument in the exercise of its powers
            under section 157(1) of the Financial Services and Markets Act 2000.
            Commencement
            B. This instrument comes into force on [date].
            Amendments to the Handbook
            C. The Glossary of definitions is amended in accordance with Annex A to this
            instrument.
            D. The Banking: Conduct of Business sourcebook (BCOBS) is amended in accordance
            with Annex B to this instrument.
            Citation
            E. This instrument may be cited as the Banking: Conduct of Business Sourcebook
            (Amendment No 2) Instrument 2010.
            By order of the Board
            [date]
            Appendix 7
            Annex A
            Amendments to the Glossary of definitions
            Insert the following new definitions in the appropriate alphabetical position. The text is not
            underlined.
            priority debt (in BCOBS) an obligation on the part of a consumer to make a
            payment:
            (a) where the remedies for a breach of that obligation potentially
            include seeking possession of, or seeking to exercise a power
            of sale in respect of:
            (i) the sole or main residence of the consumer (for
            example, an obligation to pay secured by a mortgage or
            charge in respect of land, an obligation to pay rent
            under a tenancy, or an obligation to make payment
            under a licence to occupy land); or
            (ii) the consumer’s essential goods or services (for
            example, an obligation to pay under a hire purchase,
            conditional sale or hire agreement that relates to, or an
            obligation to pay secured by a charge on, the
            consumer’s cooker, refrigerator, or the means to travel
            to work); or
            (b) where that obligation arises out of an order of the court, an Act
            or secondary legislation (for example, an obligation to pay
            council tax, child support maintenance, income tax or court
            fines); or
            (c) where that obligation arises under a contract for the provision
            of utility supplies (for example, water, gas or electricity).
            right of set-off (in BCOBS) any right of a firm, whether under a contract for a retail
            banking service or the general law, to set-off or combine any debt due
            from a consumer or debit balance on an account held by a consumer
            against or with any sum payable by the firm to the consumer or credit
            balance on an account held by the consumer.
            subsistence balance (in BCOBS) any sum of money payable by a firm to a consumer or
            standing to the credit of the consumer in an account with the firm
            where that sum is needed by the consumer to meet essential living
            expenses or priority debts (whether owed to the firm or a third party).
            Page 2 of 5
            Appendix 7
            Annex B
            Amendments to the Banking: Conduct of Business sourcebook (BCOBS)
            In this Annex, underlining indicates new text and striking through indicates deleted text.
            1.1.5 R BCOBS 5.1.3AG and BCOBS 5.1.13R does do not apply to a credit union.

            4.1.4 G The appropriate information rule applies before a banking customer is bound
            by the terms of the contract. It also applies after a banking customer has
            become bound by them. In order to meet the requirements of the appropriate
            information rule, information provided or made available by a firm to a
            banking customer should include information relating to:

            (8) information about compensation arrangements in accordance with
            COMP 16 the terms of any compensation scheme if the firm cannot
            meet its obligations in respect of the retail banking service;

            4.1.4A G (1) This guidance applies to a firm only with respect to its
            communications and dealings with consumers where a firm has a right
            of set-off.
            (2) To comply with the appropriate information rule, the firm should:
            (a) provide an explanation of the nature and extent of the firm’s
            right of set-off in good time before the consumer is bound by
            the contract for the retail banking service. This information
            may be incorporated in the terms and conditions that apply to
            the contract for the retail banking service;
            (b) where the firm knows or reasonably ought to know that the
            consumer is beginning or continuing to experience difficulty in
            meeting his payment obligations, provide general information
            in relation to the nature of the firm’s right of set-off and the
            generic circumstances in which the firm may rely on that right
            within a reasonable period before the firm seeks to exercise its
            right of set-off. This information may be communicated in a
            standard form of words and may be incorporated in another
            communication sent by the firm to the consumer; and
            (c) where it has exercised a right of set-off, provide prompt
            notification of this to the consumer. This notification should
            Page 3 of 5
            Appendix 7
            clearly identify the date that the firm exercised its right of setoff
            and the amount debited from the consumer’s account in
            reliance on that right.
            (3) The information referred to in paragraph (2) should be provided in
            plain and intelligible language on paper or in another durable medium.

            Service
            5.1.1 R A firm must provide a service in relation to a retail banking service which is
            prompt, efficient and fair to a banking customer and which has regard to any
            communications or financial promotion made by the firm to the banking
            customer from time to time.
            5.1.2 G In determining the order in which to process payment instructions in relation
            to the retail banking service, a firm must have regard to its obligation to treat
            banking customers fairly.

            Set-off
            5.1.3A G To comply with its obligations under BCOBS 5.1.1R and Principle 6 of the
            Principles for Businesses set out in PRIN 2.1.1R, on any occasion where it
            proposes to exercise a right of set-off, a firm (other than a credit union)
            should, with respect to its dealings with consumers, so far as practicable:
            (1) review the information available and accessible to the firm relating to
            the consumer’s account, on an individual basis, and estimate the
            amount of any subsistence balance;
            (2) refrain from seeking to set-off or combine:
            (a) any debt due from, or a debit balance on an account held by, a
            consumer against or with that subsistence balance;
            (b) any debt due solely from a consumer, or any debit balance on
            an account held in the sole name of a consumer, against or
            with any sum of money payable by the firm to that consumer
            and another person jointly or any credit balance on an account
            held in the joint names of that consumer and another person;
            (c) any debt due from, or a debit balance on an account held by, a
            consumer in a personal capacity against or with any sum of
            money payable by the firm to the consumer or standing to the
            credit of the consumer in an account held with the firm, where
            the firm knows or reasonably ought to know that:
            (i) a third party is beneficially entitled to that money or
            that the consumer is a fiduciary in respect of that
            Page 4 of 5
            Appendix 7
            money; or
            (ii) the consumer has received that money from a
            government department or local authority for a specific
            purpose or is under a legal obligation to a third party to
            retain and deal with that money in a particular way.

            Page 5 of 5
            Last edited by Amethyst; 24th August 2010, 23:59:PM.
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            • #7
              Re: IMPORTANT - Right of Set Off - Consultation on BCOBS - respond by 6th Sept

              For info on FROA - First Right of Appropriation...offsetting debt against benefits RBS - Page 4 - Legal Beagles Consumer Forum


              Also the May 2010 LSB standards - http://www.lendingstandardsboard.org...e%20notice.pdf
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              • #8
                Re: IMPORTANT - Right of Set Off - Consultation on BCOBS - respond by 6th Sept

                Some thoughts, as always comment welcome - think I have your bits covered Nats.


                Does set off include taking bank charges where they would push the account further into debit.
                Ref bank charges again, should take lending code into account and acknowledge peoples FROA.

                2.1. Q21. Do you agree with our proposal that information about set-off should be provided in the account terms and conditions?
                2.1.1. Yes, we agree with that proposal. We also believe banks should include in their information a list of trading names and banks which are linked and therefore products held with these companies may also be used to set-off debts between them. This should be provided with terms and conditions and also in pre contractual information to enable consumers to make an advance decision, when deciding which firm to hold products with. Customers should be informed when banks take over others so making products linked.
                2.2. Q22. Do you see a need for further information, beyond that set out in our proposal, to be provided about set-off when a customer opens an account?
                2.2.1. Yes, we think Firms should provide details of all companies under their umbrella which may be linked. (isn't there some guidance on this already? )
                2.3. Q23. Do you agree with our proposal for firms informing customers of the right of set-off when they are beginning or continuing to experience difficulty in meeting their payment obligations?
                2.3.1. Yes, we agree with that premise. This should include a list of accounts that the customer holds which may be used for the purpose of set-off. This may enable the customer to make arrangements to use funds held elsewhere to assist them before getting to a stage where set off is likely. and set off should only be used as a last resort where no contact is being made. The wording should not be threatening. It can be sent with letters regarding late payments or unauthorised overdrafts.
                2.4. Q24. Do you agree with our proposal that customers should be promptly notified about the use of set-off on their account?
                2.4.1. Yes, customers should be promptly notified and should include details of the date, accounts involved, the amount debited – and credited and the affect on both accounts, the reasons for using the right of set-off in that specific instance. It should also include details of the complaints process.
                2.5. Q25. Do you agree with our proposals for exercising the right of set-off fairly?
                2.5.1. Yes. We agree that the firms should review all the information that is available and accessible to them relating to all products held by the customer. They should previously have followed lending code guidance on financial hardship and had communication with the customer,however failing that, firms should use their own judgment as a last resort.
                2.6. Q26. Do you have any other suggestions of other ways of exercising the right of set-off fairly?
                2.6.1. Should only take the actual arrears after a certain period (pre default) ....
                2.7. Q27. Do you agree with our proposal that firms should not use set-off in the types of scenarios set out above ?
                2.7.1. Yes, we agree. Refunded bank charges/PPI misselling can be offset to the account it came from unless FD NOT to other products etc.



                2.8. Q28. Do you agree with our proposal to apply the guidance in the information requirements to credit unions but exempt them from our post sale guidance on set-off?
                2.8.1. No but I haven’t read CRED yet to see if its covered
                2.9. Q29. Do you agree that our proposed guidance should take effect immediately?
                2.9.1. Yes re the informing customers after happened and taking into account circumstances before helping themselves, the documentation - precontractual info and T&Cs probably 6 months transition.

                2.10. Q30. Do you have any comments on our proposed amendment to BCOBS 4.1.4G(8) ?
                2.10.1. No
                Last edited by Amethyst; 25th August 2010, 18:54:PM.
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                • #9
                  Re: IMPORTANT - Right of Set Off - Consultation on BCOBS - respond by 6th Sept

                  Originally posted by Amethyst View Post
                  Some thoughts, as always comment welcome - think I have your bits covered Nats.
                  Always a good idea !!!

                  Comment


                  • #10
                    Re: IMPORTANT - Right of Set Off - Consultation on BCOBS - respond by 6th Sept

                    Case studies
                    About to be hit with £200+ charges and we'll go under.... help

                    £50k CC/loan debt and job loss - Legal Beagles Consumer Forum

                    Halifax credit card in dispute - swiped £360 out of current account - Legal Beagles Consumer Forum

                    Lloyds taking Housing beneft payments to cover charges and overdraft - Legal Beagles Consumer Forum

                    natwest p.p.i refunds being paid into my default account




                    Banks of Offset - Legal Beagles Consumer Forum - T&Cs
                    Last edited by Tools; 26th August 2010, 23:10:PM.
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                    • #11
                      Re: IMPORTANT - Right of Set Off - Consultation on BCOBS - respond by 6th Sept

                      Nattiedoodle - where was this from ?

                      Originally posted by Nattie View Post
                      These are the rules that NatWest have for the right of Set Off.
                      The rules for this are set out below however the overriding policy is as follows:

                      - Set off should only be undertaken after default/ overdraft enforcement notices have expired and remain unrectified, and before the case is transferred to Credit Management Services.
                      - The only exception to this is when we transfer funds to bring a loan account up to date, which can be done at anytime in the Collections process.
                      - If a credit balance is transferred to a debtor account, thus leaving a credit account with a nil balance, the credit account should be closed(however an account can be left open to allow a customer to make BACS and BGC payment(either MTA or deposit).
                      - Where these are sufficient funds in the credit account to clear the debtor account, the Collections Centre should take the final balance including charges which have accrued but not yet passed to the account.
                      - Collection Centre;s should only set off balances where the accounts are unsecured- where a customer holds security then set off will be carried out by CMS.

                      THE RULES

                      Set Off is allowable when the account are in the Same Name and the Same Right.

                      SAME NAME

                      This means exactly what is says, balance must be owed to and by the same customer.
                      The exception to this comes from the operation of common law, where one "legal" person is automatically liable for the obligations of another "legal" person.
                      EG where an individual has a sole account in credit and a joint account in debit, for which he is jointly and severally liable, then it is allowable to set off the credit balance against the joint debtor account(provided accounts are in Same Right).

                      SAME RIGHT

                      - In the eyes of the law the accounts must be beneficially owned by the same customer- thus excluding trust account for example- and have the same repayment term, this normally means that balances on the accounts are repayable by or to the customer on demand.
                      - Cash ISA and TESSA accounts are excluded as would be any deposit account where the customer needs to give us notice to withdraw funds, e.g. the balance isn;t payable to the customer on demand.
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                      • #12
                        Re: IMPORTANT - Right of Set Off - Consultation on BCOBS - respond by 6th Sept

                        Have the LSB actually taken any enforcement action against any firm due to breaches of the lending code.

                        If we cant find it on the site I guess an FOI would be worthwhile though bit late to include that in this report.
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                        • #13
                          Re: IMPORTANT - Right of Set Off - Consultation on BCOBS - respond by 6th Sept

                          Originally posted by Amethyst View Post
                          Have the LSB actually taken any enforcement action against any firm due to breaches of the lending code.

                          If we cant find it on the site I guess an FOI would be worthwhile though bit late to include that in this report.
                          They're not covered by the FoI Act but that doesn't prevent us from asking. I'm more than happy to do it.

                          You want to know a) if they have they identified any breaches of the code and b) if they have taken any enforcement action as a result?

                          Comment


                          • #14
                            Re: IMPORTANT - Right of Set Off - Consultation on BCOBS - respond by 6th Sept

                            Ahh yes that's right they aren't covered.

                            They had a lot of confidential info back from banks when deciding on the May 2010 guidance on the right of set off in the Lending Code. I was wondering whether enforcement /investigations had taken place leading up to or following that. But yes otherwise any enforcement action at all, be nice to know if the previous lot re Banking Code had too.
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                            • #15
                              Re: IMPORTANT - Right of Set Off - Consultation on BCOBS - respond by 6th Sept

                              Okey doke I'll draft something in a bit.

                              Comment

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