Monday, 30 January 2012

Bankers' Bonuses: Why is There No "Right to Offset"?

Bankers are always quick to point out that we silly civilians fail to understand that the arm of the RBS that makes investments is different from the arm that owes us massive debts, and that justifies the one arm taking huge bonuses to pat itself on the back rather than applying them to repaying what is owed to the taxpayers by the other arm.

I do understand that, but I don’t care.  The RBS is the RBS. It owes taxpayers a fortune.  If one arm is making pots of money, great, let them put that toward what is owed by the other arm.  I don't claim to be a financial expert, but my argument seems to make perfect sense logically.

Interestingly, that sort of logic is so clear to the banks that they are willing to apply it to us lowly taxpayers.  I was made redundant from my job and can no longer pay the £1600 per month minimum payments to my credit cards (which most of the banks raised to 30% interest so my payments for years have not touched the main debt, just the monthly interest, and these payments are so crippling that I’d been forced to use my credit cards more for basic living expenses).

My hope is that I’ll get a new job soon and carry on with those payments, but I don’t have the money right now, so I responsibly worked with a (free) debt management service to draw up a debt management plan, whereby I will pay a minimal amount to the banks each month as a token payment until I am back on my feet.  I then have every intention of continuing to pay off those debts.  Much to my surprise, I was warned by that service that I should move my bank account right away.  That was a blow; I’ve been happily with my bank for 22 years.  But there’s a reason why they must recommend that.

My bank has the legal right to freeze my current account if it is concerned that I won’t be able to repay my credit card debt with them; it’s called the ‘Right to Offset’.  So whilst I have a pittance in my account that I might just manage to live off briefly until I find work, they could suddenly take that and leave me completely unable to pay my mortgage, utilities, insurance, vet bills, basic food costs or even this minimal payment I’m offering to my credit cards.  I’d be genuinely out on the street with absolutely nothing, even though I plan to keep paying off my credit card balance; I just can’t afford the usual larger monthly payment right now.

So what puzzles me is, if the bank can freeze my credit balance to apply it to my debt, why don’t they understand how that works when we, the taxpayers, look to them to apply what their investment side is earning to what the other side owes? Why do we have no Right to Offset? It seems clear to me, and must be clear to them, too.

I’m sure their answer would be that that’s completely different, and I just don’t understand.  Maybe I don’t.  But it really seems clear to me that I do. What's wrong with simple logic?

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