Many small charities receive infrequent donations and during 2020 have had to suspend their activity in terms of raising or spending funds as a result of the Covid pandemic. With smaller balances typically held on these accounts which accrue very low interest rates, these accounts are at best zero profit centres for banks. In many cases they represent a loss making opportunity. As a result, many banks are policing charity accounts heavily and closing any that appear dormant. Because of Covid, not all charities are able to challenge the idea that their account is dormant before it is closed and the first indication of a problem is when a letter is sent with a cheque made out for the closing balance.
In normal times, a bank might reinstate the account, or a new account could be opened with a rival. However, due to Covid restrictions and severe operational pressure on the banks, the big four are not accepting applications for new community or charity banking accounts. Nat West appears on comparison accounts however their website apologises that they are not accepting such applications.
A very small number of challenger banks are accepting new account applications from charities. However it doesn’t appear that any of these, being mobile app based, will accept cheques.
So, charities might be able to open a new account on a mobile app, but cannot encase the closing funds from their existing bank. This is leaving charities estranged from their funds with cheques that will go out of date six months from issue.
Added stress for trustees comes from assessing which fin tech banking app they should trust. The Wirecard fraud exposed in June 2020 caused at least one online banking app service to close for three days to assess its position. It’s a nervous time for those entrusted with public donations.
It is unlikely a quick resolution will be found to the problem. The Treasury is faced with an immediate issue where the big banks refusal to open new business accounts is cutting a quarter of a million small businesses off from bounce back loan funding. The large banks are reported to be close to being operationally overwhelmed by applications for further Bounce Back top up loans and it seems unlikely they will prioritise small charity accounts until sometime in 2021, dependent on the continuing impact of Covid-19.
In the event of the closure of an account Charities should complain to their bank in the first instance, asking for the account to be re-instated. If they are unsuccessful with this, they should consider appealing to the financial ombudsman service. This would be on the basis that they are not being treated fairly because the banks are failing to protect clients’ money by transferring balances into bank issued cheques which they know cannot been encashed, effectively locking the charity or community group’s resources.