Did you know we all have a right to specify how money paid into our bank account is used? You have the ‘first right of appropriation’ of any money paid in. Most people don’t know this and wouldn’t need to use it usually. But if you’re getting into debt and going overdrawn, it’s worth knowing what this complicated sounding term means and how to use it.
If you don’t specify what you want money paid into your bank account to be used for, then your bank has the ‘second’ right of appropriation. That means they decide what bills they will pay. Usually this is on a first-come, first-served basis with money deducted from your account in date order until there’s no money left or until more is paid in.
A problem arises if you have an unauthorised overdraft or are at the limit of an authorised overdraft. If your wages or benefits are then paid into your account you might not be able to access that money if the bank takes it to reduce the overdraft.
They have the right to do this, but only if you do not instruct them to use your wages, benefits etc in a different way before that money is paid into your account.
That’s a problem, because some debts are ‘priority debts’ – that means if you don’t pay them you could face serious consequences. Eviction, for example, if rent isn’t paid; power could be cut off if your electricity bill isn’t paid.
If you have an unsecured loan with the same bank as your current account, the bank will automatically take its loan repayments from your current account, whether you can afford it or not. Because it’s not a direct debit or standing order, you can’t cancel it. Unfortunately this can mean people having no money left out of their wages or benefits to pay rent or council tax or to buy food.
If you do have a loan with your current account bank, the best thing to do is open a new bank account elsewhere. Have your income paid into that. But you may not be able to do that before your next money is paid to you…
Here's what to do if you know you will ‘lose’ your next wage packet or benefits payment if it gets paid into your bank account:
- Go to your bank with a letter clearly instructing them which payments you want them to make using the next payment coming in.
- Make sure you write the words 'first right of appropriation' in your letter.
- You'll need to write to the bank with new instructions each time you make a deposit.