Payment accounts: new rules proposed to protect customers against debanking

The UK Government has recently published draft legislation to update the requirements for closure of bank accounts by payment service providers, with the aim of strengthening protections for customers against debanking.

Background

The measures were first proposed in April 2024, following certain high-profile cases where individuals had their bank accounts closed without their agreement and the Financial Conduct Authority’s subsequent review into payment accounts access and closures.

The review found no evidence to suggest that customers’ accounts were being closed because of their political beliefs or other lawfully expressed views, but it was noted that there were improvements to be made.

Draft Regulations

The draft Payment Services and Payment Accounts (Contract Termination) (Amendment) Regulations 2025 (the 2025 Regulations) have now been laid before Parliament and, if approved, are expected to come into force in April 2026.

They will amend the existing Payment Account Regulations 2015 and Payment Services Regulations 2017, which regulate the provision of accounts and other payment services to personal and business customers in the UK.

Proposed Changes

The explanatory memorandum which accompanies the 2025 Regulations highlights the fact that the notice periods currently given to affected customers are often inconsistent, with some receiving two months’ notice and others less, depending on their provider. Even where two months’ notice is given, this is considered to be an insufficient period for customers to find an alternative provider before the termination takes effect, causing disruption to the management of their finances or their business operations.

There is also no requirement for payment service providers (which include banks, building societies and e-money issuers) to give an explanation for the termination, so customers often do not understand why their accounts have been closed.

As such, the 2025 Regulations will introduce new requirements for payment service providers to:

• give customers at least 90 days’ notice prior to contract termination;
• provide a sufficiently detailed and specific explanation to enable the customer to understand why the contract has been terminated; and
• provide details of how the customer can challenge the decision, for example, by making a complaint to the payment service provider or to the Financial Ombudsman Service.

The proposed changes would apply to contracts for payment services which are concluded on or after the date the 2025 Regulations come into force (expected to be 28 April 2026).

Exceptions

There will be certain exceptions to the new requirements, for example, to enable payment service providers to comply with their anti-money laundering obligations, or where a provider considers that the customer’s conduct towards its personnel has amounted to violent threats, harassment or abusive behaviour.

In addition, where the payment service user is not a consumer, a micro-enterprise or a charity, the parties may agree that the termination requirements do not apply.

Conclusion

In situations where the new requirements do apply, it is hoped that the increased notice period and additional transparency will result in fairer and more predictable outcomes for customers, making it easier for them to challenge decisions and giving them more time to find an alternative provider.

The changes should also give payment service providers greater clarity and certainty regarding the extent of their obligations.

Going forward, payment service providers will need to ensure that they are fully prepared to meet the new requirements when the 2025 Regulations come into effect next year. This will likely involve reviewing and updating their policies and procedures and ensuring that staff are fully trained to deliver the appropriate notices and to provide support to impacted customers.

If you would like any further information or advice, please contact Rachel Lewis from our Banking & Finance team.

*This information is for guidance purposes only and does not constitute, nor should it be regarded as, a substitute for taking legal advice that is tailored to your circumstances.