Study Shows More Americans Are Raiding 401(k) Accounts To Pay Bills

A new national study shows that too many of us are cashing out 401(k) accounts to pay bills. If that retirement account is calling your name, a financial expert advises you to stop listening.

When the bills pile up and money is tight, many people turn to their 401(k) accounts to help ease the bind.

Downingtown, Pa. CPA Jacquelyn Basso says it’s not a good idea to raid your retirement; you’re getting money now that you’ll need to live on when you’re older. Read more >>

Bank of Ireland Wants Another Bailout

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And people DO nothing...

The BBC reports that the Bank of Ireland has announced losses of almost 1bn euros (£895m) for the six months to the end of September.

The bank has said that the total value of loans that it thinks might not be repaid will be 6.9bn euros (£6.1bn) for the period to April 2011. It has warned the Irish government that it may require another infusion of taxpayers' capital.

The bank has 44 branches in Northern Ireland and runs a financial services joint venture with the UK Post Office. It said the past six months had been "difficult" and gave a very cautious appraisal of future economic prospects, saying there were "some indications of a slow-down in the pace of economic decline in the UK and to some extent in Ireland."

The bank's UK division posted a operating profit of £163m but that became a £203m loss when impaired loan charges were taken into account. The bank said it remained committed to the UK market and will continue its partnership with the Post Office.

Uncertainties

In September, Ireland's Minister for Finance Brian Lenihan said around 16bn euros worth of Bank of Ireland loans would be transferred into Nama, the country's "bad bank" which is intended to remove toxic property loans from lenders' balance sheets.

However the bank said on Wednesday that significant uncertainties exist surrounding the specific amount of loans being transferred, when they will be transferred and the price that will be paid for those loans.

In a rescue plan for its economy, the Irish government has already pumped seven billion euros into its top two lenders, with Allied Irish Bank and Bank of Ireland each getting 3.5bn euros in state cash.

Ireland's banking sector has been badly hit by the international financial turmoil, the collapse of a domestic property bubble and a deep recession in the former "Celtic Tiger" economy.

Banks Raiding Accounts to Pay Debts

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Lindsey Rogerson
An increasing number of hard-pressed Scots, struggling with debt repayments, are finding themselves left without money to pay their rent, heat their homes, or even buy food, because their bank is snatching wage and benefit payments from their current accounts without warning.

Money Advice Scotland and Citizens Advice Scotland both confirmed to The Herald that they have seen a considerable rise in the number of their clients being left in extreme financial hardship as a result of set-off. This little known practice gives banks the right to take money without warning from a customer’s account if they fall behind with repayments elsewhere within the same banking group, such as those on a credit card or loan account.

Yvonne MacDermid, chief executive of Money Advice Scotland, said: “We have seen an increase in this [practice] and I think we will see more of this, especially as banks can’t bring in so much money through [bank] charges etc.”

The only way to stop a bank using set-off is to ensure that current account, savings account, credit card and personal loans are all held with separate institutions. However, it is often not possible for indebted consumers to switch banks. Indeed a CAS bureau in the North of Scotland had one client who was threatened with court action by her bank for attempting to move her current account to another bank. This threat was issued after the bank had taken £400 from her account without warning, leaving her with no money to live on.

Kaliani Lyle, chief executive of Citizens Advice Scotland, said: “While setting-off is legal, it can place severe hardship on a client if their bank uses all the wages or benefits that are put into an account to pay towards other commitments. And, as ever, the people who are most vulnerable to this are those who are struggling on the lowest incomes to begin with.

“If someone is struggling with debt, it’s not in anyone’s interest – including the bank’s - to put the client into even deeper financial trouble. We would ask all banks to look very closely at their procedures in relation to setting-off, and to be as flexible as possible – taking clients’ individual circumstances into consideration.”

However, questions have now been raised, by consumer groups, as to whether banks using set-off are in fact breaching their own voluntary code of practice. In many cases money is been snatched from accounts by banks, less than two weeks after a payment has been missed and just days before direct debits for mortgage, council tax and utilities bills are set to come out of a customer’s account. The guidance on the Banking Code, to which all UK banks are supposed to adhere, appears to forbid this.

It says that banks “should acknowledge that income should only be used to repay ‘non-priority’ debts once provision has been made for any ‘priority’ debts. The subscriber [bank] should leave the customer with sufficient money for reasonable day-to-day expenses”.

A missed payment on a credit card or unsecured personal loan is not a “priority debt”. The Banking Code Standards Board is currently investigating 12 UK banks over their approach to set-off, after a catalogue of suspected breaches was sent to it by consumer groups. One such case involved a client at an East of Scotland CAB whose bank moved all his part-time wages and benefits from his account to go towards arrears on a personal loan. This action left the client in financial hardship, with no access to funds for himself or his family. On the face of it this appears to be a cut and dried breach of the Banking Code.

However, the issue of how and when set-off is applied has yet to be resolved and the Banking Code Board will cease to exist at the end of this month when responsibility for bank accounts passes to the Financial Services Authority. The FSA told The Herald it had not written a specific rule which would prevent banks taking money from customer accounts via set-off without prior written notice as it insists they must do in the case of bank charges. However, a spokesperson said that they believed notifying customers about set-off would be covered under its more general “appropriate information“ rule.

“From 1 November the appropriate information rule will apply covering pre-sale, to the sale itself and post-sale. This means that even if a customer has an existing contract, the firm must continue to provide information to enable that customer to make ongoing decisions on an informed basis.”

In addition the regulator said any bank taking money which left a customer unable to meet priority debts or buy food could be held accountable under its treating customers fairly principle, pointing out that it expected banks to be every bit as thorough in identifying financial hardship cases with regard to set-off as it was with regard to the bank charge waiver.

FDIC Propping up Foreign Banks

From The New York Times:
Guaranty Bank, a deeply troubled Texas lender, was sold on Friday to Banco Bilbao Vizcaya Argentaria of Spain in one of the largest government-assisted deals offered to a foreign firm. Federal regulators seized Guaranty Bank and simultaneously brokered the sale of its branches as well as most of the deposits and assets to BBVA Compass, the Spanish bank’s American subsidiary. The government, however, agreed to absorb most of the losses on $9.7 billion, or more than 80 percent, of the Guaranty assets included in the deal.

The failure is the fourth-largest since the financial crisis began, and the Federal Deposit Insurance Corporation projects that it will cost its deposit insurance fund about $3 billion. Stockholders in Guaranty Bank will be wiped out, but the deal ensures that its depositors will not suffer losses. Although BBVA did not take control of the failed bank’s $344 million of brokered deposits, the F.D.I.C. said that it would reimburse brokers directly for those funds.

The government also agreed to shoulder the bulk of the losses on all of Guaranty’s loans — a deal sweetener that the government has rarely extended to overseas buyers. BBVA agreed to buy $12 billion of the $13 billion assets left at Guaranty Bank, which it will ultimately sell to private investors. The F.D.I.C. agreed to take on the remaining $1 billion of assets, as well as cover losses on the $9.7 billion pool of risky loans that BBVA bought. The agreement calls for the government to take on about 80 percent of the first $2.3 billion of losses, and 95 percent of the losses above that threshold.

Loss-sharing agreements have become a standard part of the F.D.I.C.’s toolkit for resolving troubled banks, but rarely have they covered such a big portion of a failed bank’s assets. And seldom are they offered to foreign buyers. Indeed, it appears the last time that an overseas bank received federal assistance in a failed bank deal was when the Bank of Ireland scooped up four New Hampshire banks in September 1991.