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Citizens Advice calls banks to account for treating bankrupts unfairly

12 July 2010

In a report launched today national charity Citizens Advice highlights concerns that people going through bankruptcy are too often being banned from opening even a basic, no credit, bank account. Despite there being no legal reason why undischarged bankrupts shouldn’t be able to access one, only two out of the seventeen banks that provide basic bank accounts offer them to people who have recently been made bankrupt.

In the report, Called to account, Citizens Advice uses evidence from its network of bureaux across England, Wales and Northern Ireland to highlight the impact this financial exclusion has on bankrupts. The charity also challenges the stance adopted by the majority of banks and calls on them to offer these accounts to people going through bankruptcy.

Between 2000 and 2009 the numbers of people applying for bankruptcy rose 249 per cent (from 21,500 in 2000 to 75,000 in 2009). Insolvency Service figures show that in 2007-08 the most common reason people applied for bankruptcy (44 per cent) was because of ‘unplanned changes to a bankrupts circumstances’ – i.e from job loss, relationship breakdowns, illness or accidents.*

Bureau evidence shows that being denied a basic bank account is demoralising, impractical and makes it extremely difficult for people going through bankruptcy to take control of their finances and make a fresh start.

Gillian Guy, Chief Executive of Citizens Advice said:

“Great progress has been made in improving access to bank accounts for many groups who were previously financially excluded, yet there are still groups, such as undischarged bankrupts, who struggle to open even a basic bank account.

“Most people take having a bank account for granted, but without access to one, basic tasks such as receiving wages or benefits and paying bills can become huge and costly obstacles to overcome, particularly for people who are often at a vulnerable point in their lives. Just because someone is made bankrupt it doesn’t mean their life stops.

“The banks who exclude undischarged bankrupts say that they are concerned about potential liability. This just doesn’t stack up - two banks that do offer these accounts have told us they experience no difficulties. Furthermore both the Treasury Select Committee and an independent Banking Code review have called for more banks to make their basic accounts available to undischarged bankrupts.**

“Citizens Advice is calling upon the banks who continue to exclude bankrupts to change their policies as a matter of urgency.”

Last year, between April 2009 - March 2010, Citizens Advice Bureaux in England and Wales dealt with over 150,000 enquiries about bankruptcy, an increase of 10% on the previous year.

Alternative options for undischarged bankrupts facing difficulties in opening a basic bank account include Post Office Card Accounts and Credit Union Current Accounts. There are other options but they usually charge numerous fees. POCAs are widely available and can be accessed via counter services nationwide, however aside from benefits, tax credit and pensions payments other deposits (wages, housing benefits, cash, cheques) cannot be made, and there are no electronic facilities for payment or withdrawal.

CAB client example

Janette’s debt problems began after her divorce. Despite a court order, her ex-husband didn’t pay money back that he owed her. After the divorce Janette decided that she wanted to move to live near to her mother, who was terminally ill. She bought a property nearby which meant increasing her mortgage significantly, but Janette thought she could manage. She had an overdraft and loans outstanding from renovations to her previous home, but had always coped well financially. Unfortunately, her hours at work were reduced and then she was made redundant. Janette began to get into financial difficulties which meant she found it hard to meet her basic living costs and pay the bills. Eventually her house was repossessed.

After realising she needed to take action, Janette researched her options and decided to petition for bankruptcy. Her order was granted in August 2008. Janet soon concluded that she wouldn’t be able to open an account with any high street bank, so she opted for a Managed account which is split into two: one ‘salary’ account and one ‘current’ account, where money is moved between the two by a money manager. Janette opened this account as she believed she had no other option but says: “With this account I’m not in control and I don’t like that. I don’t want to be somebody who’s treated differently any longer than I have to be. I don’t want an overdraft, I don’t want a credit card. I’m not asking for credit. I just want a debit card so I can pay for things more easily! Not being allowed one makes me feel inadequate”

Extra information

* Insolvency Service figures for England and Wales. In Northern Ireland the number of bankruptcies increased from just over 350 in 2000 to 1,200 in 2009 www.insolvency.gov.uk

** “Banking the unbanked”: banking services, the Post Office card account, and financial inclusion. Thirteenth Report of Session 2005-06. House of Commons Treasury Select Committee, 2006, www.publications.parliament.uk

2007 Independent Review of the Banking Codes: Recommendations of the Independent Reviewer and Response by the Code Sponsors

You can access a copy of Called to account and hear Tony Herbert, one of the authors of the report, talk about the issues in a podcast:

www.citizensadvice.org.uk/called_to_account

Related advice on basic bank accounts and bankruptcy:

Advice on bank accounts

Advice on bankruptcy

Notes to editors:

  1. The two banks that do offer basic bank accounts to bankrupts are Barclays and The Co-operative Bank. Those who provide them, but not to undischarged bankrupts are: Abbey Santander, Alliance & Leicester, Bank of Ireland, Bank of Scotland, Clydesdale, First Trust Bank, Halifax, HSBC, Lloyds TSB, Nationwide Building Society, NatWest, Northern Bank, The Royal Bank of Scotland, Ulster Bank and Yorkshire Bank. More info at: www.moneymadeclear.org.uk/HTML/en/products/bank_accounts/basic_bank_accounts_popup.htm
  2. Managed accounts are a specialist product aimed at people who have difficulty opening a mainstream bank account. A set up fee and monthly fee are charged, typically set up fees are around £25-30 and monthly fees around £12.50
  3. Gillian Guy takes up the role of Chief Executive at Citizens Advice from Monday 12 July 2010. She was previously Chief Executive at Victim Support
  4. The Citizens Advice service comprises a network of local bureaux, all of which are independent charities, and national charity Citizens Advice. Together we help people resolve their money, legal and other problems by providing information and advice and by influencing policymakers. For more information in England and Wales see www.citizensadvice.org.uk
  5. The advice provided by the Citizens Advice service is free, independent, confidential, and impartial, and available to everyone regardless of race, gender, disability, sexual orientation, religion, age or nationality. For online advice and information see www.adviceguide.org.uk
  6. Citizens Advice Bureaux in England and Wales advised 2.1 million clients on 7.1 million problems from April 2009 to March 2010, an 18% increase on the previous year. For full 2009/2010 service statistics see: www.citizensadvice.org.uk/press_20100517
  7. Out of 22 national charities, the Citizens Advice service is ranked by the general public as being the most helpful, approachable, professional, informative, effective / cost effective, reputable and accountable. (nfpSynergy’s Brand Attributes survey, May 2010).
  8. Most Citizens Advice service staff are trained volunteers, working at around 3,300 service outlets across England and Wales.