Beware thieves operate in this bank!

THIS is an urgent WEALTH warning. There's a hidden danger for anyone with loans or credit cards where they bank or save.

Sneak 'thief' lenders are exploiting little known 'setting-off' laws to use the cash in your account to pay the debt WITHOUT permission and WITHOUT telling you first.

This outrage can be the final straw for those struggling in the recession. It's so significant the banks have been warned by their own code of practice.

Yet the truth is, no one's stopping them even though banks taxpayers now PART OWN are among the worst.

So it's time to take them on. I want to show you how to prise your money from the banks' grip and fight back if you're already a victim.

SETTING-OFF'S A FINANCIAL KILLER

YOU may think, "it's only fair, the cash is owed" but it can easily cause financial catastrophe. The severely indebted are always told to prioritise keeping a roof over their head, heating and food, yet lenders can scupper this with setting-off, blowing a hole in any budget.

Imagine you put money aside to pay the mortgage, then-WITHOUT telling you-the bank takes it to clear the credit card you have with it. Then your mortgage direct debit bounces and you're in arrears and possibly incur bank charges. Disgraceful!

Citizens Advice has seen a 25 per cent rise in setting-off complaints over the past two years. To gauge its scale, we asked those affected to call GMTV. Scores did, and one told how money had been taken from her CHILDREN'S savings to repay a business overdraft. As a horror story it shows the vigilance needed.

THE LAW BEHIND THIS

NO surprise if you've not heard of this practice. Getting solid information is as hard to nail as jelly to a wall. So this is my best assessment . . .

Don't think it's a "check your Ts and Cs" issue as it appears to be a historic right, so you might not find it's stated. When it is included, it reads like this: "The Bank may, without notice, set off a debit balance, or debit interest, on an account against any account with a credit balance or credit interest held by the same account holder."

It ought to include terms if the bank exercises its right to move your money between separate banks in the same group, from joint accounts, or from business to private accounts.

Yet some rules can help . . .

Any financial institution should alert you once the money's taken, although the timescale for doing this isn't clear.

Debts should be undisputed-i.e. you definitely ran them up, and they must be 'payable-on-demand' so your entire overdraft or credit card balance can be 'set-off', but it only applies to missed monthly payments for loans.

HOW TO FIGHT BACK

MOST people WON'T be hit by setting off, yet those who are struggling to make repayments need to watch out.

Since debts usually cost more than savings earn, it makes sense to pay off debts with any savings. Keep emergency access to funds though. Pay off a credit card to save interest, but leave it open just in case.

Don't bank where you borrow. The simplest way to protect your cash is to keep your debts and bank account/ savings in SEPARATE financial institutions. As it's often much easier to shift assets than debts, this usually means opening a new bank account. If you're struggling, a basic bank account without an overdraft facility isn't credit scored (see www.moneysavingexpert.com/bankaccounts ), or try your local Credit Union.

The fact that many banks are part of mega-conglomerates now throws up the question of what constitutes a separate institution? The answer depends on the bank's legal entity-basically how it's registered at Companies House.

Communicate if you're struggling to repay. Transparent finances will help get you back on track. Banks are under pressure to behave well. Even the Banking Code Standards Board, which oversees banks' OWN rules, has sent out a warning about inappropriate setting off for customers in hardship.

Complain to the free, independent Financial Ombudsman Service. While setting-off seems legal, institutions are supposed to "treat customers fairly", especially those in financial difficulty.

If setting-off has left you in hardship, complain to the bank first, and if it's not sorted the ombudsman can assign compensation for malpractice.

Has this happened to you? If you've been hit by setting-off rules, get in touch at notw@moneysavingexpert.com

TV Money Guru Martin Lewis is the creator of the Consumer Revenge website www.MoneySavingExpert.com which is packed with info on how to get more money in your pocket.

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