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Bank Regulations for Bankrupts due to be Relaxed

13 - 12 - 2012

The government is expected to announce legal changes to bank rules that will make it easier for banks to offer basic accounts to undischarged bankrupts.

Currently, only Barclays offers accounts to people within twelve months of their being declared bankrupt, after the Co-op announced that it would no longer accept applications from undischarged bankrupts for its Cashminder account.

 

The changes to insolvency law will reduce the risk of banks being sued if a bankrupt customer uses an account to spend money that a creditor may have a claim to.

One in Five Unable to Find an Account

A consultation on changing the laws surrounding banks and bankruptcy took place a year ago but the Co-op’s recent decision to stop offering accounts to bankrupts put pressure on the government to take action to improve access to basic bank accounts.

 

The consultation had revealed that almost three in four (73%) had their bank accounts closed after they had been declared bankrupt. Additionally, the government found that 55% of bankrupts struggled before finding a new account and almost one in five (18%) were unable to find any bank account at all.

 

‘To make vital transactions quickly and safely’

Announcing the prospective changes, Consumer Minister Jo Swinson emphasised the importance of having a bank account in a bankrupt’s ability to restore his finances.

‘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,’ she said.

‘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 explained.

However, she added that banks would not be obliged to provide accounts to bankrupts; rather it would be a commercial decision for each bank to take.

‘Monitoring the market closely’

The Co-op has welcomed the announcement and suggested it would offer accounts to bankrupts if other banks did so.

‘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,’ said Robin Taylor, the Co-op's head of banking.

 

‘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.’

 

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