The UK government has proposed a law that would force banks to give customers more advanced notice and an explanation before closing their accounts, following a surge in complaints over “debanking” and a row between Natwest and former Ukip leader Nigel Farage.
Chancellor Jeremy Hunt announced last October the government would legislate to ensure banks could not close accounts for political reasons.
The comments came after Brexiteer Farage claimed last summer that his Coutts account was closed because of his political views, since threatening legal action. The scandal triggered the resignation of both Coutts and Natwest’s chief executives.
In December, an independent review by law firm Travers Smith found that account closures at Coutts were in line with industry standards and showed “no evidence of discrimination due to political views” but flagged “deficiencies” in its communication on the issue.
The bank’s row with Farage has weighed heavily on its public image, as well as spurring widespread media attention and official complaints over the issue of “unfair” account closures.
The Financial Ombudsman revealed last November that it had opened 1,613 new complaint cases about account closures between April and September. This rate of more than 268 complaints per month compared with a monthly rate of around 225 for the whole of 2022.
Under the proposed legislation, banks and other payment firms would be required to give 90 days’ notice ahead of an account closure, up from the current period of two months. They would also have to provide the customer with a “sufficiently detailed and specific explanation.”
Banks would not be able to put clauses into customer contracts to bypass the new rules, although they would not have to give a notice period or explanation if acting due to anti-money laundering or terrorist-financing safeguards – a common reason given by banks for closing accounts.
The Treasury said that while its concerns were related to retail customer services, the broader issue of “debanking” predated the high-profile incidents seen last year.
Parliament is expected to approve the new rules before the summer, and they will come into force “as soon as practicable”.
The Treasury said: “The government has been unequivocal in its view that customers should not see a payment service terminated on grounds relating to their lawful freedom of expression including, for example, political beliefs.”
“The government has therefore concluded it is appropriate to address its reforms to contract-termination rules to all payment services providers,” it added.