A bank transfers money from a customer’s savings account to reduce the overdraft on his current account – but doesn’t tell him

What happened

Glenn had a current account and savings account at the same bank. The overdraft facility on his current account was originally £5,000. However, on several occasions over the previous three years the bank had agreed to his request for an increase. He said he needed the money temporarily while he was waiting for his divorce settlement to be finalised.

When the overdraft reached £40,000, Glenn’s bank wrote to tell him it would only extend his overdraft facility for a further three months. It said he would then have to repay the money – and it asked him to set out how he would do that.

Glenn wrote back suggesting the bank should reduce his debt to £25,000. He said he’d be able to repay that amount, interest-free, by making a lump sum payment of £5,000 followed by monthly payments of £500.

The bank didn’t respond to Glenn’s letter. Three months later, it sent Glenn a formal demand for the repayment of his overdraft debt – which then stood at £38,000. At the same time, and without telling Glenn, it transferred £12,000 from his savings account to his current account, to help reduce the overdraft. It also cancelled all the direct debits on his account and stopped his debit card. Glenn only discovered this after his debit card was ‘swallowed’ by a cash machine and he started to receive calls about missed payments from direct-debit mandate holders.

Glenn complained to the bank that it had acted unfairly in ‘helping itself’ to his savings without warning. He also complained that the bank had caused him considerable difficulty by cancelling his account arrangements. The bank didn’t uphold his complaint, so Glenn came to us.

How we helped

The bank provided evidence that, well before it had written to Glenn asking for his repayment proposals, it had made clear to him its concerns about the level of his debt. We thought the bank had been entitled to use the balance of his savings account to help repay the long-standing debt.

However, it was unable to explain why it hadn’t responded to Glenn's letter about his plans to repay his debt. We thought that if it had contacted him when it received the letter, Glenn would have known in good time that his proposals weren’t acceptable.

We also thought the bank should have told Glenn that it had set off his accounts and cancelled his direct debits and debit card. The bank admitted it had failed to do this because of poor communication between the branch where Glenn's accounts were held and the collections department at the bank's head office. Each assumed the other had written to Glenn to tell him what had happened.

We didn’t uphold Glenn's complaint that the bank had treated him unfairly in setting off his accounts. But we did say that the bank's administrative failings had caused him some embarrassment and inconvenience. The bank offered to reduce Glenn's debt by £350 in acknowledgement of this. We said this was a fair settlement in the circumstances.