An important update if you have financial hardship

In October 2009 the Financial Ombudsman (FOS) wrote to both the High Street Banks and the Claims Management Companies. In this letter the FOS is asking the banks to handle account charges 'fairly and efficiently' and that the banks are to adhere to their banking code for 'financial hardship' cases.

See FOS letter dated Oct2009 by Caroline Wells. Letter opens in PDF document. You may wish to read this and refer to it when in correspondence with your bank.

See FOS letter to Claims Management Companies. Letter opens in PDF document.

The FOS needs to stop pussyfooting round the banks. Full article.

Financial hardship

There are various definitions but basically you are experiencing financial hardship if you are struggling to meet your commitments each month; however this can then be further compounded by the banks adding interest and charges for late or missed payments.

Another example is where you are not able to meet your basic needs with the money you have coming in and you are behind with council tax or court fines, you are about to have your home repossessed or your only income is that derived from benefits.

You may need to provide evidence of any changes in lifestyle such as relationship breakdown or death of a partner, loss of employment or starting a lower paid job. Other examples of financial hardship could be demonstrated if you are suffering from some form of disability or serious illness, starting full time education or are currently in or have recently been in prison.

Below are examples of financial hardship taken from 'The Banking Code' - guidance for subscribers - issued March 2008

Change in lifestyle, often accompanied by a fall in disposable income and/or increased expenditure, such as:

• loss of employment;
• disability;
• serious illness;
• imprisonment;
• relationship breakdown;
• death of a partner;
• starting a lower paid job;
• parental/carer leave;
• starting full-time education.

Other examples are

• items repeatedly being returned unpaid due to lack of available funds;
• failing to make loan repayments or other commitments;
• discontinuation of regular credits;
• notification of some form of insolvency or court proceedings;
• regular requests for increased borrowing or repeated rescheduling of debts;
• making frequent cash withdrawals on a credit card at a non-promotional rate of interest
• repeatedly exceeding a credit card or overdraft limit without agreement
• receiving more than £500 per year in bank charges

More on this can be found on the The Lending Code Setting standards for banks, building societies and credit card providers. See page 28.

How do I know if I qualify?

There are no set rules; it is your decision according to what is happening in your life such as above. If you honestly believe you are suffering financial hardship then consider getting some help from the banks.

Is there a template letter I can use?

You do not necessarily need one as you can telephone the bank and state that under their banking code you feel you should be considered under their hardship rules. Alternatively you can write to the bank more or less stating the above.

What is the banking code?

This is a voluntary code which sets standards of good banking practice for financial institutions to follow when they are dealing with personal customers in the United Kingdom. It provides valuable protection for customers and explains how financial institutions are expected to deal with them day-to-day and in times of financial difficulty.

Note section 2 on page 6 'will consider all cases of financial difficulty sympathetically and positively' and section 14 on page 25 'we will be sympathetic and positive when we consider any financial difficulties you may have' 'if you find yourself in financial difficulties, you should let us know as soon as possible. We will do all we can to help you to overcome your difficulties'. More here on the Banking Code

I think I have a good case to claim under the financial hardship guidelines, what should I do?

You will need to contact your bank and inform them that you believe the hardship rules apply to you and that you would like your case to be given priority.

It does not matter whether you have entered a claim for bank charges and it is on hold waiting for the test case outcome or if you are about to start a claim.

In response to your contact with the bank they should send back a form to complete known as a 'common financial statement' or 'income & expenditure form'. We have our own on-line budget wizard which is free to all members.

What do I do if the bank ignores my request to be dealt with under 'financial hardship?'

If the matter is not resolved within 8 weeks you can then enter a complaint to the Financial Ombudsman Service, FOS. To find out more about the FOS procedure click here.

The Financial Ombudsman Service (FOS) is a free, independent service which might be able to settle a complaint between a customer and a bank or building society. You can take your complaint to the FOS if you are not satisfied with the way the bank or building society has dealt with it or they have not completed their investigations within eight weeks of your complaint. The contact details of the FOS are as follows:

The Financial Ombudsman Service
South Quay Plaza
183 Marsh Wall
London
E14 9SR

Phone: 0845 080 1800
Website: www.financial-ombudsman.org.uk

Okay, what about complaints that involve bank charges as well as other banking-related problems such as financial difficulty?

It should usually be possible for the (FOS) to deal with all the parts of a complaint except the part that relates specifically to whether bank charges are lawful or not. So it's likely that only the bank charges issue would remain on hold, while the FOS wait for the important legal questions in that area to be settled.