Why Banks are Closing Overdraft Accounts
This ugly thing reared its head last week following a phone call from a colleague. He was quite distressed because the bank had suddenly taken a long standing overdraft facility away from him without providing any reason for doing so. Admittedly he’d been using the facility more than usual, but times are unusually tough and the banks have given a commitment to the government to help business in any way they can, so he was at a loss why his bank, AIB in this case, would take away a facility that he so obviously needed to get him through some tough trading circumstances. I empathised as much as I could but said I was at a loss as to why an institution would be so callous as to remove a line of credit when it was so obviously needed. His payments were completely up to date, he hadn’t defaulted on anything, there were just some short term cashflow issues in an otherwise perfectly solvent operation – something the bank had said previously, on several occasions, it totally understood.
I then read something in the Sunday Business Post over the weekend, written by Ian Kehoe, that brought all the strands of bank related treachery together, you can see the piece below. I’ve highlighted the most important bits in pink, but the rest is useful as background. As the old break-up phrase goes, ‘it’s not you, it’s me’. This has everything to do with the banks and their commitments to the government and nothing much to do with you – even though this will most likely come as no great solace to you.
Why Has My Bank Removed My Overdraft Facility
Essentially the banks are taking away your overdraft as a book-keeping exercise to make it look like they are lending to businesses when in fact they are not. When a bank removes your overdraft, it is because it is confident you can’t pay it back. Therefore the only option available to you when it is taken away is to make it into a term loan. But this, oddly enough, is all to the bank’s advantage.
By removing your overdraft and creating a new term loan the scheming institution has, by the criteria laid out by the government, instituted a new loan, thus killing two birds with one stone. It has removed an overdraft facility from its books that looked like it was non-performing and created a new loan that will in all likelihood, for some period at least, be considered a performing loan. In fact, the institutions are so callous that, if they feel you will not be in a position to make some repayments to the new term loan that is created, it will more than likely be classified a bad debt from the off, thus ruining your credit rating to boot, meaning you can’t get credit anywhere else either.
As any business in any town in Ireland will tell you, their financial institutions are patently not helping them with their financial problems. The very opposite is, in fact, the case. Banks appear to be going out of their way to hinder the proper operation of small businesses right around the country. What is remarkably ironic, is that banks are doing this in order to protect themselves from the fallout of an economic crisis largely caused by – their reckless lending. So you are paying on the double as your taxes are going, to a very large extent, to pay for the great big money pit that was named, with apparently no sense of irony whatsoever, the Irish Bank Resolution Corporation (IBRC, the entity formed to crystallise losses at the former Anglo Irish Bank).
What Should I Do?
Unfortunately, at this point in time there is no way of forcing a bank into renewing your overdraft facility apart from bringing it before the Credit Review Office. Banks are pretty good at making their case in this review, so don’t get your hopes up that it will solve anything. The bank will usually have ensured that you have a bad credit rating by the time you get to this forum, which will be used as justification for refusing you credit, even though they were the ones who ensured you had the bad credit rating in the first place.
If you feel your bank has unfairly removed credit from you in this or any other way, it is certainly worth reporting it to the Credit Review Office – it may not do any good, but at least the treachery of the banks will have been reported somewhere. You could also, if you have gone through the bank’s formal complaints procedure, lodge a complaint with the Financial Services Ombudsman.
You should also write a letter to your bank and explain that you are aware that they have closed your overdraft as a book-keeping exercise to enhance the balance sheet of the bank rather than because it helps you as a customer, because it is obviously no assistance at all. The reason for doing this is not because they’ll do anything about it, it is simply because they’ll have to place a copy of this letter with your permanent records at the bank. You can ask for a copy of this record at any time and the bank is obliged to provide it to you. This record includes any interventions the bank has made on your behalf to higher offices when it has claimed that issues are ‘out of its hands at a local level’. It also means that if there is ever an inquiry into your case the facts of their actions cannot be denied.
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