Reform should increase availability of basic bank accounts

| December 7, 2012 | 0 Comments
Reform should increase availability of basic bank accounts

Undischarged bankrupts should find in easier to open a basic bank account when changes are made to insolvency law.

Barclays is the only bank still to offer basic bank accounts, which allow customers to pay in wages and any benefits but do not provide other services such as overdrafts.

Basic bank accounts were offered by the Co-op until September, when they were withdrawn over concern that it was accepting an unreasonable amount of bankrupts as customers because other banks were failing to serve this group.

Most banks do not provide the accounts because of the risk that they could be sued if a bankrupt used their account to spend money on which creditors might have a claim.

The Co-op’s move has prompted the government to go ahead with plans to introduce legal reforms to reduce this risk.

Consumer Minister Jo Swinson said: “Having access to a bank account means being able to make vital transactions quickly and safely, avoiding the risk of carrying around large sums of money.

“Most of us take these everyday tasks for granted, but for bankrupts attempting to make a fresh start, they can be a whole lot more stressful.

“Insolvency law can also cause difficulties for the banks, so that’s why we’re amending it to help them offer more accounts to bankrupts,” she said.

In a consultation on changing the law, which took place in 2011, the government found that only 27 per cent of people were allowed to keep their bank account after they were declared bankrupt.

Fify-five per cent found it difficult to open a new account and 18 per cent were unable to open an account at all.

The proposed reforms have been welcomed by the Co-op.

Robin Taylor, the Co-op’s head of banking, said: “We withdrew from offering access to un-discharged bankrupts earlier this year with a heavy heart and believe that it is imperative that these changes encourage immediate action from other account providers on this issue.

“We will be monitoring the market closely to see what impact these changes have and would urge banks to voluntarily amend their policy whilst legislation is changed.”

New research by Credit Action has found that UK personal debt stood at £1.4 trillion at the end of October.

Average household debt, excluding mortgages, stands at £5,934.

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