Bank of Scotland plc trading as Halifax · DRN-6241827

The complaint Miss A complains Bank of Scotland plc trading as Halifax (“Halifax”) unfairly moved her student account to a standard current account and then defaulted the agreement. What happened Miss A has held a student account with Halifax since 2016. In August 2024, Halifax moved Miss A’s account from a student account to a current account, which meant that she started to incur charges for using her overdraft. Miss A said she graduated in 2023, so was entitled to remain on a student account tariff for longer. Halifax asked that Miss A provide evidence of when she graduated but says it didn’t receive sufficient evidence of this. In January 2025, Halifax closed Miss A’s account. It said she’d been in her overdraft for a number of months, and no credits had recently been received into her account. Halifax also recorded a default on Miss A’s credit file. Miss A consequently complained. She was unhappy that Halifax had changed her account. Miss A said she’d tried to resolve the matter in branch without success. Halifax didn’t think it had made an error in switching Miss A’s account or then closing it. It says it notified Miss A of the account change in May 2024 and as the overdraft remained outstanding was entitled to close the account. Halifax acknowledged Miss A had been in touch in January 2025, however by this point the closure process had already begun. Halifax paid Miss A £20 to acknowledge any upset caused and refunded overdraft interest totalling £145.77. Unhappy with Halifax’s response, Miss A referred her complaint to our Service. One of our Investigator’s looked into what happened and thought Halifax should have done more to help Miss A and had it done this, it’s unlikely her account would have been closed. Our Investigator recommended Halifax take back the administration to Miss A’s account and arrange an affordable repayment plan. She also recommended any adverse information be removed from Miss A’s credit file. Alongside this our Investigator recommended Halifax compensate Miss A £500 to acknowledge any upset and inconvenience caused. Halifax disagreed with our Investigator’s recommendations. It said when Miss A opened her student account, the terms set out the longest this could have run for was six years. It said Miss A had had the benefit of a student account for as long as it was able to provide it, so it didn’t agree it had made an error in switching and then closing her account. Halifax agreed to pay compensation up to £500, however said if Miss A wasn’t in a position to repay the overdraft, it would incur charges in line with the applicable terms of the account and if Miss A required a long-term payment plan, it would default the agreement. So, Halifax was concerned that removing the default and then reapplying it in the future may not be a better outcome for Miss A.

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Miss A said she was in a position to repay the overdraft at £30 a month and considered our Investigator’s initial recommendations to be fair. As agreement couldn’t be reached, the complaint has been passed to me to decide. I previously issued my provisional findings, which I’ve included below: I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. I’ve considered the relevant rules and regulations applicable to this complaint and while I may not comment on everything (only what I consider is key) this is not meant as a discourtesy to either party, rather reflects the informal nature of our service. Student account to current account I’ve started by reviewing whether Halifax was wrong to switch Miss A’s account from a student account when it did. In reviewing the terms and conditions that applied to Miss A’s account when it was opened as a student account, these set out that the longest it could be held as a student account was six years, including the year after graduation. Miss A held a student account from 2016 to 2024, so it would appear she’s benefited from holding a student account for longer than the terms set out when she opened the account. I can see Halifax wrote to Miss A in May 2019; to say her it understood she’d be graduating that year, and she was entitled to maintain the student account for a year after her course had ended. I understand Miss A was required to postpone her studies and graduated in 2023. I have limited information to show what discussion there was with Halifax on this, but taking everything into consideration, I don’t find it unreasonable Halifax switched Miss A’s account from a student to a standard current account when it did. Miss A had the benefit of a student account for eight years, which is longer than the terms set out she was entitled to when the account was opened and I haven’t found this caused her a loss. I note that since Miss A opened her student account, Halifax has offered different terms on these accounts. However, in considering the terms that applied when Miss A opened the account, which I consider are the relevant terms, Miss A was only entitled to benefit from the student account and preferable overdraft fees for a maximum of six years. Switch to standard current account I’ve then reviewed what happened when Halifax moved Miss A’s account onto the standard current account tariffs. Halifax wrote to Miss A in May 2024 to say the change would take effect from August 2024, which would include daily interest being charged to any outstanding overdraft. Following this, Halifax moved Miss A’s account onto the standard tariff meaning it started to incur daily fees as she was utilising the interest. Miss A called Halifax on 9 September 2024 to say she thought she was entitled to keep her student account for three years after graduation. The advisor initially explained that is dependent on when a student account was opened. The advisor then says it does appear Miss A is entitled to keep the student account for three years after graduation. The advisor recommends Miss A attend a branch to try and resolve this, as he’s limited as to what he can do over the phone.

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I think this is where the confusion began. Now we’re aware of all the information, during this call, the advisor should have explained that due to when Miss A opened her student account, she wasn’t entitled to remain under the student terms for three years after graduation. Rather it had been correctly switched to a standard current account in August 2024. Had Halifax clearly explained this, Miss A would then have been in a position to decide what she would do going forwards, such as maintaining the current account and paying the fees for any usage of the overdraft or possibly discussing a repayment plan with Halifax. This however didn’t happen, with Miss A making unsuccessful trips to branch and incorrect virtual meetings being booked in and then cancelled, with Miss A believing she’d be able to keep the student terms on her account. So here I do find Halifax made an error and caused avoidable distress and inconvenience to Miss A. I’ll therefore consider these points further below in what I find to be a fair resolution to this complaint. Closure and default of the account I then move to consider whether Halifax was reasonable in its decision to close and default Miss A’s account when it did. For the reasons I’ve explained above, I find Halifax was entitled to switch Miss A’s account to a standard current account when it did, meaning the charges were correctly applied in line with the terms of the account. As no credits were being made into the account and the overdraft interest charges were taking Miss A beyond her agreed overdraft limit, I then think it was reasonable that Halifax asked Miss A to make payments into her account or get in touch to discuss it. While Miss A was trying to arrange for her account to be switched back to a student account, I must also consider that she could have mitigated any impact by ensuring the account was maintained in line with its terms and conditions. The Information Commissioner’s Office (ICO) says that when a consumer is at least three months behind with their payments then a default may be registered. It also says it would expect a default to be registered by the time the consumer is six months behind with their payments. That’s what happened here. Miss A was in a sustained period of arrears – with no credits being made into the account from October 2024 until the account closure in January 2025, noticeably with no payments to remedy the breach as set out in the default notice issued in December 2024. Because of this Miss A’s current account was closed and a default reported to the CRAs. Therefore, it appears, Halifax complied with the guidance set out by the ICO and was reasonable in its decision to default the account given the persistent state of arrears. I must however give consideration to the impact of Halifax’s advice that Miss A should be able to continue her account under the student terms and what’s most likely to have happened had she been given the correct advice. Had Miss A been given the correct advice in September 2024, she’d have been in the knowledge that her account had correctly switched, and she’d therefore incur charges on a daily basis for using her overdraft. This would then leave Miss A with broadly three choices:

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- Pay off the overdraft in full - Continue to pay funds into the account and incur fees for any day using the overdraft - Agree a repayment plan with Halifax to repay the overdraft balance. It’s not possible for me to say exactly what Miss A may have opted to do, however my understanding is she didn’t have the funds to pay off the overdraft, so I’ve discounted option one. Miss A may have accepted that her account would now incur fees. However, as she was aware of this from August 2025 and didn’t/wasn’t in a position to make credits into her account to prevent the account from defaulting, I find it more likely that Miss A would have explored option three; which would have been agreeing a repayment plan with Halifax. I can’t say for certain exactly what sort of payment plan Miss A may have entered into with Halifax to repay her overdraft balance. Halifax has however explained that any plan that included the suspension of fees and charges and required repayment over a number of months would have seen it default the account regardless as the terms of the account would be considered to have been breached. Miss A has proposed a repayment plan of £30, which means it would take approximately 42 months to repay the outstanding overdraft. I don’t know for certain whether Miss A would have proposed higher payments to avoid a default. However, Miss A has also explained she’s offered to repay what she can afford, and I find it likely the monthly payments would have had to be significantly higher to avoid a default. So that is to say, while I do find the service Miss A has been provided has been confusing, unhelpful and caused upset, had nothing gone wrong, I think Miss A is likely to have found herself in broadly the same position she finds herself now. That is, I think the account switched to a standard account correctly in August 2024, at that point Miss A was fully utilising her overdraft meaning she’d have incurred daily charges. I don’t find Miss A was in a position to repay the overdraft or maintain the account in line with the terms and conditions considering the cost of using the overdraft. I therefore find it likely Miss A would have looked to agree a payment plan with Halifax and due to the amount I understand Miss A can afford to repay each month, I think the account would still have proceeded to default. So therefore, I don’t find that Halifax must remove the adverse information from Miss A’s credit file or buy back the debt, as in line with the terms of the account, once it has defaulted Halifax can make the decision to sell the outstanding balance to a third party. Putting things right Halifax has already refunded the interest and charges applied to Miss A’s overdraft between August 2024 and the account closing in January 2025, which I find reasonable in the circumstances. Halifax also paid £20 compensation. Our Investigator recommended Halifax increase this to £500 to recognise the frustration and upset caused, which Halifax has also agreed to pay. Taking everything into consideration, I do think the service Halifax provided should have been better and find this has caused confusion which has no doubt been upsetting for Miss A. Miss A was given unclear advice and believed she would be able to maintain her student

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account for longer, when that wasn’t the case. Miss A also went through the process of attending branches and attempting to set up meetings to discuss her account with Halifax. While I think Miss A is likely to have found herself in the same position for the reasons I’ve explained above, I do think the service provided should have been better. While it doesn’t take away from customer journey Miss A experienced, I do find £500 to recognise these failings is fair and reasonable in line with how our Service considers compensation. Therefore, I consider this compensation to be a fair resolution to this complaint. Responses to my provisional findings Halifax responded to say it accepted my provisional decision. Miss A responded to say she disagreed and provided further comments, which I’ve summarised below: - Halifax providing the interest free overdraft longer than six years may have been detrimental. - Had Miss A been given the correct advice in September 2024, her financial position was stronger, so she’d have been able to pay down or reduce her overdraft significantly then. - Miss A didn’t make payments into her overdraft after interest started to be applied, due to Halifax saying her account should still be a student account. - Taking all of this into consideration, to conclude her account was most likely to default was unreasonable. The complaint has therefore been passed back to me, so I can make my final decision. What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. Having done so, I’ve reached the same conclusions as those in my provisional findings set out above. I appreciate this answer will likely come as a disappointment to Miss A, however I won’t be directing Halifax to remove the default, rather I find compensation to be a fair resolution to this complaint. I’ve taken on board Miss A’s comments that her financial circumstances were different in 2024, so she’d have been in a position to repay the overdraft had she not been given conflicting answers. However, I also take into consideration that Halifax made Miss A aware in May 2024, that it would start charging interest for the use of the overdraft in August 2024 and no action to reduce the outstanding balance or discuss the account with Halifax was taken during this period. It’s difficult to know with complete certainty, what would have happened had the advisor not suggested it was possible for Miss A to remain on student account terms during the call in September 2024. However, taking everything into consideration, I remain of the opinion Miss A is likely to have found herself in the position that she now finds herself; being that the account has been closed and an agreement to repay the outstanding balance over time. For the reasons explained in my provisional findings, I do think Halifax caused confusion, I’m also conscious that it then issued clear letters in November and December 2024, to explain what would happen if the account remained in an unarranged overdraft, including the account being defaulted.

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I appreciate Miss A says had she not been given misleading information she’d have made a lump sum payment to reduce her overdraft balance. However, the correspondence from Halifax was clear in the actions it would take, and I haven’t seen that Miss A took steps to mitigate this such as ensuring her account remained within the agreed overdraft limit, even if she reasonably thought Halifax would return her account to student tariffs. Therefore, I do find it’s more likely than not, that had Halifax not many any errors, Miss A’s account would still have been closed and defaulted at some point during the repayment of the overdraft. As a result, I don’t find that Halifax must remove the default from Miss A’s credit file. I’ve also considered Miss A’s concerns that holding the account on student terms for longer than initially set out, itself may have been detrimental. I’m not however persuaded that’s the case. From the information available, Miss A was aware there was an outstanding balance on the account, that this would need to be repaid to Halifax at some point and that the overdraft wouldn’t remain interest free indefinitely. So, I don’t find that having access to an interest free overdraft for longer than was initially expected caused a loss. In conclusion, I do find Halifax gave Miss A the incorrect information and this then caused further confusion which could have been avoided. However, for the reasons explained I think Halifax was reasonable in moving Miss A’s account onto its standard tariffs including charging interest for using the overdraft. While Halifax did cause confusion, I think it was also clear on the steps it was taking with Miss A’s account including the closure and default of the agreement. Therefore, I don’t find Halifax must remove the default. Rather I find compensation to be a fair resolution to recognise the errors made. To put things right, I find Halifax should pay Miss A a total of £500 compensation. This alongside the interest it’s already refunded, I consider to be a fair resolution to this complaint. My final decision For the reasons I’ve explained, I uphold this complaint and direct Bank of Scotland plc trading as Halifax to pay Miss A, a further £480 in resolution of this complaint. Under the rules of the Financial Ombudsman Service, I’m required to ask Miss A to accept or reject my decision before 21 April 2026. Christopher Convery Ombudsman

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