Clearing Negative Balance

In practical terms SS run the bank reconciliation first thing of a morning (it was just before 08:30 this morning) Monday to Friday certainly and sometimes at the weekend.

If after that run your account is negative, SS will send you an email asking you to resolve the negative balance. Its probable that you will only receive 2 such emails before action is taken to sell some of your loan parts to clear the negative balance.


You will earn interest on loan parts held whilst your balance is negative providing you clear the balance before SS take action - they simply unwind your purchases as if they never happened.

So if you buy loan parts now (6pm Monday), and anything you list on the SM to cover sells before 7am Wednesday you'll certainly be fine, and probably OK upto 7am Thursday.

Correct - which is why there is a sudden hive of activity on the SM shortly after midnight every day.

I think (hope !) that there is some manual review before they actually unwind purchases that will spot the multiple iterations ... I know I've got myself in a bit of a mess before now, but suspect the fact that there was an incoming credit to my SS account every 24 hours was evidence I was settling up even if it was for the wrong amount ...

How large an amount of parts/-ve balance are we talking about?

The daily interest is 1/30th of 1%, roughly. A grand's worth will be about 33p/day.

Worth worrying about, or...?

A long, long time ago, probably in the good old days of green stripes for available loans, allocation of deposits seemed to randomly hit loan part purchases.  I certainly recall one occasion where SS sent me a narky email saying I was several days overdue when what they had done was to allocate several payments to recent purchases leaving one old one seemly unpaid.  They backed off when I demonstrated how my payments matched the purchases made and that the only outstanding amount was for loan parts purchased within the last 24 hours.  But in recent history I have had no problems and I'm pretty confident that the new system can correctly allocate payments in time order.  They still send a chasing email even if your negative balance was created just briefly before the time of the email run, but to be fair they do say to just ignore it in this case.

I thought the consensus view was that such abuse of the system, particularly if done in a systematic manner, would be likely to attract unwanted attention from SS.

The 24/48 hour "limit" is, as I understand it, intended to allow for the various delays in clearing and processing payments (allowing for overseas users who may not have access to Faster Payments), and NOT intended as a mechanism to allow users to get free money as interest on funds they never invested. It is presumably set up so that the vast majority of genuine delays and "honest mistakes" are dealt with semi-automatically.


Attempts to cheat the system like this would seem to me more likely to result in one or more of the following:
- transactions being reversed and/or overriding the default interest calculation when doing the monthly checks before crediting interest
- delays in processing the monthly interest payments, while SS staff/systems perform these checks and take any necessary action
- restrictions being placed on the accounts of those who are clearly and systematically trying to cheat the system (or in more extreme cases, the account being terminated).
- restrictions being placed on everyone due to the cheating methods becoming too widely known and abused (so that the monthly checks become tortuous).


In the last category, we've already had the introduction of limits on the maximum negative balance you can create, and when this alone wasn't enough to prevent abuse, a further restriction was introduced on selling loan parts within 7 days of acquiring them (prior to this, the most obvious way to attempt to cheat the system was to sell a loan part after 1 or 2 days without ever paying for it).

If more than a handful of people start intentionally holding a negative balance overnight in order to gain "double interest" (so that the monthly checks start taking too long, or result in corrections to too many accounts / transactions) this will undoubtedly prompt further restrictions and/or changes to the system to prevent it.

To my mind the most obvious minimal-impact change would be to explicitly keep track of which loan parts have been paid for (e.g. creating another section under "My loans" for "unpaid loan parts"), and fill in the "Start date" based on the date that the loan part was actually paid for, rather than the date it was originally created. However, this would either require same-day processing of bank transfers (which they don't currently seem able or willing to do), or slightly more complex processes so that when an incoming payment is processed, the "Start date" is set to the date on which a payment was received (potentially overriding an earlier "start date" that was set by selling a loan part in the interim), rather than the date that SS's systems got round to processing it. [If they simply set the "Start date" to when the payment was processed, this would likely lead to widespread complaints due to the current processing delays having an actual financial impact].



By analogy, it's a bit like someone with a high performance car trying to get tips on exactly how far before a speed camera they should brake, how much over the speed limit they can go before the camera notices, and how soon after it they can accelerate back to the speed that THEY believe they can control just outside the school gates... yes, you might be able to figure out ways around the currently known detection systems, but it doesn't change the underlying problem that those restrictions were designed to limit, and doesn't stop other detection methods being used next time.

Thankfully, in this case, it's only money at risk (in particular, widespread abuse of the systems may mean that SS don't have enough cleared funds in the bank to allow a borrower to have their money at the agreed time), but the 24/48 hour limit should, in my mind, be viewed as a safety net in case you didn't immediately discover the negative balance, or couldn't immediately settle it, rather than as something that should be planned for.