Why do banks punish poorer customers?
Very few people run up debts with a view to going bankrupt. For the average consumer, it’s caused by an unexpected trigger, such as a relationship breakdown or job loss.
For most people, going bankrupt is a last resort and one they usually take after getting professional advice. While many will say people have an outright duty to repay their creditors, it could be argued that if creditors adopted a more supportive approach, there might be less pressure to petition for bankruptcy in the first place.
Unless you’ve been through bankruptcy yourself you can only begin to imagine the stress, trauma and anguish these people go through. And to top it all off, they are then often denied even a basic bank account, which is demoralising, impractical and makes it extremely difficult for them to take control of their finances and make a fresh start.
It means bankrupt people may face the burden of having to ask friends or family members to use their accounts, resulting in a dependence on others. Without a bank account, people are unable to benefit from direct debit discount schemes, or online discounts, and can be charged extra to pay bills in cash. In the worst scenario it can result in people losing their jobs or failing to obtain employment, because their employer can’t pay their wages into a bank account.
So why do banks treat current and previous bankrupts as pariahs of society?
What has bankruptcy or even a chequered credit history got to do with opening a basic bank account? A basic bank account has no credit facilities, no chequebook and no credit card. But it gives the account holder a cash card so at least salary payments can be made direct into the account.
Out of 17 UK banks and building societies only two now offer bank accounts to current bankrupts - the Co-op and Barclays - so why don’t the rest?
It doesn’t wash with me that they cost money to run and are not cost effective. It works well for the Co-op and I am getting good reports about the sympathetic and supportive way they deal with bankrupt consumers.
As far as I’m concerned the banks should, by law, make banking facilities available to all and not just cherry pick their customers. After all, the banks contribute to the bankrupt’s demise. They, like the borrower, could have said no!
There is no risk to the bank from supplying bankrupts with a basic account - If you are not offering money then it cannot be owed.
The banks see it differently though. What worries them is ‘fear of liability’ which they feel may come about if the bankrupt has a windfall or large payment of cash dropped into their account and it is hidden from the Official Receiver (OR) the body responsible for overseeing the bankrupt’s finances. For some reason the bank feels they may be liable if the money goes AWOL.
I’ve heard some pretty lame excuses in my time but I’ve never heard of this happening, and I also fail to see how the bank would be liable.
Are we sowing the seeds of unrest by denying those unfortunate enough to go bankrupt the right to have a bank account? I’m not suggesting they get the full monty of a credit card and overdraft, just the basic account that allows them to function in a modern society where cheques are being phased out.
We need plastic to start a tab in a restaurant, book car insurance on line, make a purchase on the internet or book a holiday.
So now is the time to support those that have had money woes and put them on an equal footing with the rest of society. Many bankrupts actually rebuild over time and continue to pay their way in society through taxes and national insurance contributions.
An overdraft is an agreement with your bank that authorises you to withdraw more funds from your account than you have deposited in it. Many banks charge for this privilege either as a fixed fee or charge interest on the money overdrawn at a special high rate. Some banks charge a fee and interest. And other banks offer a free overdraft but impose very high charges for exceeding the agreed limit of your overdraft.
An unexpected one-off financial gain in cash or shares, generally when mutual building societies convert to stock market-quoted banks. Also windfall tax, a one-off tax imposed by government. The UK government applied such a measure in the Budget of July 1997 on the profits of privatised utilities companies.
A scheme originally established in 1944 to provide protection against sickness and unemployment as well as helping fund the National Health Service (NHS) and state benefits. NI contributions are compulsory and based on a person’s earnings above a certain threshold. There are several classes of NI, but which one an individual pays depends on whether they are employed, self-employed, unemployed or an employer. Payment of Class 1 contributions by employees gives them entitlement to the basic state pension, the additional state pension, jobseeker’s allowance, employment and support allowance, maternity allowance and bereavement benefits. From April 2016, to qualify for the full state pension, individuals will need 35 years’ of NI contributions.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
A no-frills vanilla bank account that allows you to have your salary paid in, to set up direct debits and standing orders for money going out and online access, but won’t allow you an overdraft, cheque book, interest earned on the balance or paper statements.
A person (or business) unable to pay the debts it owes creditors can either volunteer or be forced into bankruptcy – a legal proceeding where an insolvent person can be relieved of their financial obligations – but loses control over their bank accounts. Bankruptcy is not a soft option. Although it may wipe the financial slate clean, it is extremely harmful to a person’s credit rating (it will stay on your credit record for six years) and will adversely affect your future dealings with financial institutions. Bankruptcy costs £600 paid upfront.