Obtaining a bank reference

What is a bank reference?

A bank reference is a letter or document issued by a bank confirming that an account holder has an account with it, and giving its opinion on the account holder’s ability to meet a financial commitment.

A bank reference will only be provided by the bank with the explicit authorisation of the account holder to comply with strict data protection laws. The bank will generally require written authorisation for each and every separate enquiry.

Specific account details are not generally given by the bank. Commonly, the requesting third party, such as the landlord or letting agency, requests a bank reference from the account holder who will submit their figures showing the intended financial exposure. The bank will then provide some basic information and its measured opinion on the capability of the customer to take on the proposed financial requirements.

Since the bank has to protect the account holder, the information is relatively general.

How is a bank reference obtained?

Either the third party, such as a letting agency, formally requests a bank reference from the bank with the account holder’s written permission; or the account holder themselves request it.

Normally, it will be requested by the third party, using the bank/building society standard documentation including a consent form. The third party is likely to complete the form, send it to the account holder to complete the consent form, and they will then forward it to the bank.

Who is authorised to request a reference?

Generally, only the account holder is authorised to request a bank reference, but the account holder can typically allow third parties to make enquiries along with a letter of authorisation. This must, of course, be in line with the specific policies individual banks will have in place.

What are bank references used for?

Bank references are generally required by third parties who are about to engage in some degree of financial risk with the account holder. These third parties are typically landlords, vehicle hire companies or potential business partners. Essentially, these third parties requesting a bank reference will wish to evaluate the potential risk you may be, and to check whether your history with the bank shows you can make the financial commitment you are proposing.

Example: bank reference request procedure for landlords

One of the most common use of the bank reference is by landlords (and letting agencies). The usual procedure is that the landlord makes a request either directly to the bank of the prospective tenant, or through the bank of the landlord themselves. Generally, there are fees involved, though they are usually charged to the account of the landlord.

The documents usually required are the authorisation/consent from the account holder (the proposed tenant) for the bank to release the information requested. Information provided to the bank will typically include the name of the prospective rental property and the current address and account number of the prospective tenant; the amount of rent involved; the payment period and possible contract length, and the name and address of the landlord.

What are the contents of a bank reference?

Banks are quite restricted in the information they supply in bank references. Their wording is careful and sometimes elaborate and not easy to understand, requiring careful reading to be able to discern the actual evaluation.

A reference may include phrases such as ‘respectable and trustworthy’, ‘considered good for your figures and purpose’, ‘should prove good’, ‘our evaluation suggests that our client will prove good for your figures’; or ‘based on our evaluation the working capital of the client appears to fully utilized’, and ‘the figures on the document of request submitted to us contains figures higher than expected’.

Reading between the lines can be a challenge. Banks need to support and protect their customers. However, they cannot misrepresent a customer’s financial record otherwise they could face an expensive claim for misrepresentation, negligence and or breach of duty of care. Generally, banks provide a true picture of the financial status of the account holder. The banks usually choose their words carefully to preserve the integrity of their clients and to protect themselves.

Recognising this, landlords, third party credit providers and others often rely solely on the presence of the bank account. This of course bars any direct statements by the bank that the client may indeed be a credit risk.