Originally published 6 Apr 2009
Communities To Benefit From Forgotten Millions
Figures suggest that there may be as much as £20bn in bank and building society accounts in the UK that are lying dormant and unclaimed, often because people have forgotten about them. The purpose of this new Act is to set up the framework for a scheme under which some of the money in dormant bank and building society accounts will be reinvested in society, whilst ensuring that the right of owners to reclaim their money is protected. The Act was fully brought into force on 12 March 2009.
A "dormant account" (for the purposes of the Act) is an account on which there have been no customer-initiated transactions for 15 years. Banks and building societies are free to make use of money received from customers (subject to prudential rules which aim to ensure the institution always retains an adequate capital base). However, the deposits in bank or building society accounts constitute a debt owed by the bank or building society to its customer which the institution is liable to repay to its customer indefinitely.
The purpose of the Act is to enable banks and building societies to cancel their liability to repay a customer where the money in a dormant account is transferred to a reclaim fund. The customer's right to repayment will be exercisable against the reclaim fund instead. This cancellation of liability is required in order to ensure banks and building societies can participate in the scheme without suffering an adverse impact on their balance sheets - this is useful in the current economic climate.
The Act provides that a bank or building society's liability to pay the balance owed to a customer in relation to a dormant account is extinguished where that balance is transferred to an authorised reclaim fund which consents to the transfer. This section will allow a bank or building society's liability to a customer in relation to a transferred balance to be de-recognised under International Accounting Standards (IAS 39) and UK Generally Accepted Accounting Practice "GAAP" (FRS 26).
In practice, institutions will have the flexibility to take into account other indications as to whether an account is genuinely dormant, in addition to meeting the requirements of the Act. For example, correspondence from the customer or activity in relation to other accounts held with the same institution may be regarded as evidence that the customer is still active and that their account, which would otherwise meet the definition of "dormant", should not be transferred to the scheme.
A holder of a dormant account is entitled to repayment of the balance (plus interest due and less charges that would have been payable) in full from the reclaim fund, even if the liability that the customer's bank or building society would have had if their balance had not been transferred is reduced or cancelled (for example if the bank is wound up and dissolved after the balance has been transferred).
The British Bankers' Association (BBA) can help trace lost bank accounts. The BBA offers a free tracing service on completion of an online form. The form can be found at www.mylostaccount.org.uk.
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