We received a petition asking:
“We the undersigned petition the Prime Minister to compel the High Street banks to obey the law on state benefits.”
Details of Petition:
“It is government policy that people on state benefits (income support, tax credits, etc) have their benefit paid into a bank account. All High Street banks impose charges on banking accounts for going overdrawn, not having funds to cover a direct debit,etc. In the case of accounts which have money from state benefits payed into them , such charges are contrary to section 187 of the Social Security Administration Act 1992 or section 45 of the Tax Credits Act 2002. However, the High Street banks continue to ignore this legislation. This petition is to request the Prime Minister to compel the High Street banks to obey the law.”
· Read the petition
· Petitions homepage
Read the Government’s response
The purpose of the Social Security Administration Act 1992 Section 187 and section 45 of the Tax Credits Act 2002 is to prevent people’s benefit money being at risk by it being assigned over to a third party in settlement of a debt. It is not intended to prohibit the application of bank charges. Bank charges are in the nature of an expense, and are incurred by the holder of the account; tax credits and benefits are payable in order to help customers meet their expenses, and as such it is legitimate for banks to deduct charges from the balance of an account held in that bank, whether the money paid into the account comes from tax credits, benefits or other sources, such as earnings.
However, to directly address concerns about unarranged overdraft and returned item charges (UOD), the Office of Fair Trading (OFT) launched an investigation, under the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs) into the fairness of standard terms in personal current account contracts that provide for the charges. This investigation continues and is considering (among other things) the level of UOD charges and how they are applied.
The first phase of the test case was launched in the High Court in July 2007. In April 2008 it was ruled that the UOD terms in banks’ personal current account contracts can be assessed for fairness under the UTCCRs. In May 2008, the Judge gave the test case banks permission to appeal his finding. In July 2008 a hearing took place into whether UOD terms in the banks’ historical and basic bank account (and certain other non-mainstream current accounts) can also be assessed for fairness under the UTCCRs, and whether they are capable of being penalties at common law. This judgment is yet to be handed down. The OFT is continuing to progress the investigation as quickly as possible and will shortly be writing to the banks with its initial views on fairness issues. However, as the test case has not been completed and the OFT not yet concluded its investigation, it would not be appropriate for the OFT to ask the banks to make changes to their charging structure at the present time.
Until there is a resolution of the uncertainties involved, the Financial Services Authority (FSA) does not believe that it is in the interests of all consumers for complaints regarding UOD charges to be dealt with. Therefore, the FSA announced on 26 July 2007 that firms would be allowed not to comply with the FSA’s rules about complaint-handling in respect of complaints about charges – referred to as the waiver – pending the establishment of a consistent approach toward resolving complaints concerning the level, fairness or lawfulness of unauthorised overdraft charges. As the waiver expired on 26 July 2008, the FSA has agreed following a review of the prevailing circumstances, to put in place for the next six months, a new waiver that commenced on 27 July 2008.
To ensure consumer protection, the FSA has imposed a number of conditions on the waiver to which firms must adhere. These conditions include the firms agreeing:
· not to take the period during which the waiver is in place into consideration in any decisions made about limitation periods or time limits for complaints;
· not to make any change to the level or structure of its unauthorised overdraft charges. If a firm proposes to do so, then it may apply to the FSA for a variation of this condition. The FSA would expect to grant the variation if a firm satisfied the FSA that the proposed changes are not materially adverse to its customers. A firm must pay particular attention to the impact on customers who are unable to modify their behaviour in response to changes to unauthorised overdraft charges;
· to continue to deal with people who are claiming to be in financial difficulty during the waiver period and to filter complaints in order to identify complainants in financial difficulty; and
· to meeting the requirements of the Banking Code in identifying and resolving situations where the customer might be experiencing financial difficulty. (The FSA has also provided additional guidance for firms when dealing with complainants in financial difficulty).
The Government believes that people should have reasonable access to their benefits. If charges become widespread, the Department for Work and Pensions has said that it will need to consider the position of vulnerable customers to ensure that they are still able to obtain the full value of their benefit. We will therefore continue to monitor developments in this area carefully as regards possible impacts, in particular in relation to financial inclusion.
The Government recognises the extra financial and social costs that financial exclusion can have for some of the most vulnerable people in society. The Government is committed to ensuring greater financial inclusion and has committed over £250m to support financial inclusion initiatives since 2005. This funding has helped to achieve a significant expansion in the availability of affordable credit and free, face-to-face money advice, delivered through partners in the not-for-profit sector. Our financial inclusion strategy for 2008-11 was announced in December 2008 in Financial inclusion: an action plan. The strategy includes work to ensure access to banking, credit, advice, saving and insurance so that everyone can manage their money, plan to cope with financial pressures and deal with serious financial difficulties.
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