The Sweep After the Shut: Challenging Set-Off When a Closed Account Leaves You Short
Photo: Diliff, CC BY-SA 3.0, via Wikimedia Commons
An account closure does not wipe out an overdraft. If a current account is closed with a debit balance, the bank may look to a savings account, a sole account or sometimes a joint account to recover the money. This is commonly called set-off, or the combination of accounts. It can happen quickly and with little warning. For a customer already dealing with a closure, the result can be a second shock: the savings used for rent or care are gone, and the bank says the terms allowed it.
The mechanics of set-off
Set-off is the bank's practice of using a credit balance in one account to reduce or clear a debt in another. The debt may be an overdraft, a loan instalment, unpaid charges or a negative balance left after closure. Banks usually rely on express terms in their account conditions. The general legal idea is that debts between the same parties can be combined when they are due. But the right is not unlimited. The accounts must generally belong to the same customer in the same capacity. Money held on trust for someone else, or money that belongs to a third party, should not be swept up. A joint account adds a further layer: the funds are not simply the sole property of one holder.
When a sweep is likely to be allowed
If you hold a sole current account with an overdraft and a sole savings account with the same bank, the bank will often have a contractual right to use the savings against the overdraft once the debt is due. Closure does not cancel the debt. The bank may also apply set-off after the current account is closed, using a final balance. Many customers only discover this when the savings balance falls. The bank should be able to show which debt was repaid, which account was used and how the figure was calculated. If the terms clearly permit set-off and the debt is undisputed, a challenge may focus on notice, hardship and the impact rather than the existence of the right.
Where joint accounts and vulnerable customers change the picture
A joint account is not a free reserve for one holder's sole debts. Banks' terms sometimes claim a broad right to set off against any account in the customer's name, but the fair treatment of a joint account depends on ownership and the nature of the debt. If one holder owes the bank money on a sole account, using the joint balance can leave the other holder short. The Financial Ombudsman Service may examine whether the bank explained the term, whether both holders were treated fairly and whether the bank considered the source of the funds. Vulnerability matters too. A bank that sweeps money needed for care, heating or priority debts without considering a customer's circumstances may face a complaint under the Consumer Duty and the fairness principles the ombudsman applies.
Signs that a set-off deserves a challenge
Look closely if the bank swept funds without notice, refused to explain the calculation, used a joint account for one person's sole debt, or took money that was clearly earmarked for essential bills. A sweep is also open to challenge if the overdraft balance was disputed, if charges made up much of the debt, or if the bank ignored a hardship request. Benefits paid into an account can raise particular issues. Customers can ask a bank to leave enough money for priority expenses, sometimes called a first right of appropriation, though the request is not a guarantee. If the bank has left you with no money for rent, mortgage, council tax or energy, say so in writing immediately.
How to challenge a sweep after closure
Start with a written request for the account statements, the relevant terms and a breakdown of the set-off. Ask which debt was paid, on what date, and under which clause. Dispute any incorrect balance in writing. If you accept the debt but cannot afford the repayment, ask the bank to reverse the set-off and agree an affordable arrangement. Explain any vulnerability and provide evidence if you can. Make a formal complaint; the bank should give a final response within eight weeks. If it does not, or if the answer is unsatisfactory, take the complaint to the Financial Ombudsman Service. The ombudsman can consider whether the bank's terms were clear, whether notice was adequate and whether the outcome was fair. In the meantime, protect priority payments and open a new account where possible. A set-off may be lawful in principle, but that does not mean every sweep is fair. The paperwork, the timing and the effect on essential spending are all part of the picture.
