BSA Briefing - Dormant Bank and Building Society Accounts Bill

Introduction

The Dormant Bank and Building Accounts Bill (‘the Bill’) is intended to provide legislative underpinning for a new unclaimed assets scheme (‘the Scheme’) to facilitate the transfer to charity of bank and building society unclaimed assets.   The Building Societies Association is committed to making the new Scheme work and we are actively encouraging our members - ie all 59 UK building societies - to prepare for and join the new Scheme.

The BSA, together with the British Bankers’ Association (BBA), has been working closely with HM Treasury in designing the new Scheme and, on the day the Bill was laid before Parliament, we published details of the non-legislative framework for the Scheme – including changes to the self-regulatory Banking Code - and a plan for finalising the component parts of this during the first half of 2009, the earliest date the Scheme can come into operation.   This has been updated recently and was included in a separate communication submitted by the BBA to MPs.

The Bill

The BSA supports the Bill, as originally introduced to Parliament.  Particularly important to the effectiveness of the Scheme are the following:

Safeguarding customers’ right to their money
Clause 1 (2) and 2 (2) ensure that customers, whose accounts are included within the scheme, retain the right to repayment of the balance on the account.  This provision is paramount and is essential to the success of the new Scheme.

Definition of ‘dormant’
Clause 11 of the Bill defines a dormant account, in essence, as one where there have been no customer-initiated transactions for 15 years or more.  The explanatory notes to the Bill state that banks and building societies will be able to take account of other contact with the customer in order to determine whether or not an account is dormant.

The BSA considers this to be the appropriate approach.  It is important that the Scheme includes only accounts where the deposit-taker and the customer have genuinely lost touch.  If the dormancy period is set too short, many accounts that are not ‘unclaimed’ will be included and this will simply add to the administration of the scheme without releasing any additional funds to charity.  After fifteen years of no customer-initiated transactions on an account (and no other contact with the customer), it is much safer to assume that an account is unclaimed than it would be after, say, five or ten years.

The ability to take account of other forms of customer contact is particularly important in a building society context.   It is common for building society members to leave their long-term savings untouched for many years - fifteen years is not at all uncommon - so it is essential that societies are able to take account of other forms of customer activity, such as visiting a branch, requesting a balance enquiry, voting at a building society AGM etc, in determining whether the member has genuinely lost touch.

Membership rights
The BSA supports the Bill’s provisions concerning the safeguarding of the rights of building society members (Clause 4 refers).  It is important that building society members are assured that their rights will not be eroded by virtue of their account being included in the Scheme.  Clause 4 of the Bill seems to us to provide the necessary safeguards.

Extinguishment of liability to pay the customer
It is fundamental to the new Scheme that when a dormant account is transferred from a deposit-taker to the reclaim fund, it is removed from both sides of the deposit-taker’s balance sheet.  Clause 1 of the Bill will facilitate this.  If this provision was not included in the legislation, banks and building societies would be left with a liability to pay the customer, even though they no longer held the asset - in the form of the transferred dormant account balance – to which the liability related.  This is explained in more detail in the Explanatory Notes to the Bill.

Special arrangements for smaller financial institutions
The BSA agrees with the Government’s proposals for an alternative scheme for smaller financial institutions. 

All building societies currently support good causes in the communities from which their members are drawn.  Feedback received by building societies from their members indicates that their members are strongly opposed to the idea that lost account funds should be used to build up a central pot to be disbursed by the Government or its agencies.  It is consistent with this for building societies to direct their members’ dormant account monies to good causes within the communities from which their members are drawn.  For some building societies this would mean channelling funds via the independent charitable foundations they have set up and which are involved in supporting charitable causes in communities local to the society.

Under the provisions of the Bill originally introduced to Parliament, the alternative scheme would be available to all banks and building societies with group assets of less than £7 billion.  As such, 50 of the 59 building societies would be able to use the alternative scheme. 

In the Bill as currently drafted, the alternative scheme would be available to all building societies (Clause 2 refers).  The maintenance of this has the support of the Chelsea, Coventry, Leeds, Nationwide, Skipton and Yorkshire building societies, all of which have assets over £7 billion. However, we understand that the Government may look to restore the original provision in the House of Commons.

Reuniting people with their lost accounts
In the run-up to the proposed introduction of the unclaimed assets scheme, building societies have been stepping up their efforts to trace the holders of lost accounts.  In parallel, the BSA launched with the British Bankers’ Association and National Savings and Investments a new website in January 2008, www.mylostaccount.org.uk.   Combined, these initiatives helped to reunite building society dormant account holders with £25million of their balances in the period June 2007 to June 2008.  The BSA’s current estimate of balances in 15 year-dormant building society accounts is £130 million and this is likely to reduce further as more tracing activity is undertaken in advance of the introduction of the new unclaimed assets scheme.

Contact: Brian Morris, Head of Savings Policy, The Building Societies Association.
Direct line:  020 7520 5910, Email: brian.morris@bsa.org.uk