Business Library
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The Bank and Your Rights |
When you open an account with a bank you create a contract. This means that you and your bank have rights and obligations, which arise from the contract (although you should note that the contract is on their terms!). This guide is written with you, the customer, in mind, and will only cover the bank's rights where they have a direct impact on you.
What can you expect from your bank?
- Your bank should process cheques coming into and going out of your account
- If your bank wrongly dishonours a cheque, this may amount to defamation. If this is the case, the bank may have to pay you damages
- If your bank wrongly honours a cheque, they may have to refund the money paid. An example of this is where the customer has cancelled a cheque with due notice, but the bank has still honoured it. However, if the cheque is used to pay something that the customer would have had to pay anyway, such as an outstanding debt, the bank will not have to refund the money
- Your bank should give responsible financial advice. Should the bank give you, its customer, advice you might be expected to act on it. If the bank gives you bad advice in this situation, which you act on, you may be able to get some recourse. On the other hand, the law is unclear when the bank gives advice to someone who is not a customer.
- The bank must ask for permission from the customer if they have been approached for a credit reference. If your bank has been approached for a credit reference concerning you or your company you are entitled to see the reference they give. This reference can give rise to liability on the part of the bank if the customer relies on it to their detriment, and the reference given was overly optimistic. Because of this, banks usually give a reference disclaiming any liability.
- If your bank changes its interest rates on overdrafts they are allowed to notify customers through newspapers. Do not be surprised if you find you are paying more interest on a long-standing overdraft, as the bank is under no obligation to notify you individually.
- However, if you are the recipient of a loan, depending on the terms of the agreement the bank may be able to change the rates. This would have to be notified individually.
What are unfair terms in consumer contracts?
Since 1995 the Consumer Contract Regulations state that if there are unfair (vague) terms in the contract or credit agreement between the customer and the bank, the contract will be amended in favour of the customer. You should note that if you are relying on a reference given by a bank into the credit-worthiness of one of your customers, the bank is not liable for an inaccurate reference.
What is legal aid?
This is the system whereby you may be able to claim free legal support. If you feel you do need legal aid in dealing with the bank you should remember that all those seeking legal aid must show that they qualify. This will usually involve analysis of your funds. Limited companies are unlikely to qualify for aid.
What do you need to do about it?
Most dealings for a small business with a bank involve fairly straightforward transactions such as paying cheques into your account or depositing cash. Problems most often arise when the customer is in debt to the bank. This can involve excessive interest or unreasonable timescales for repayment. Most often it is inability to repay a loan on time that causes the problems.
Your bank should not withdraw a loan facility or overdraft without giving you prior notice. You may be able to get compensation if you have relied on this facility to your detriment.
Fraud can hit business very hard. There may be no redress against fraudulent cheques, even when covered by a cheque guarantee card.
Recourse will generally follow these three stages:
- Complaint to the bank
- Complaint to the Banking Ombudsman
- The Courts.
This is a guide. It may be helpful for you to also talk to a professional in banking.