/ Money

Is it fair to allow banks to cash in on vulnerable customers?


Last summer, Which? research showed the high cost of unarranged overdrafts and how these charges can hit banks’ vulnerable customers the hardest. Rachel Reeves MP joins us to explain why action on these charges is long overdue…

The latest Which? research published today has again highlighted how banks are still cashing in on customers who rely on unarranged overdrafts.

Charges from big high street banks could cost up to 180% of the amount borrowed, showing the shocking extent to which customers are being pushed further into a spiral of debt by their own banks.

At present, the major banks make more than £1bn per year through the charges they levy on unarranged overdrafts. Most of the money comes from financially vulnerable customers.

These are people who are already in difficulty, trying to manage debt day-to-day, and for whom the banks should have a responsibility to help manage their finances.

Review of charges

Huge progress was made on the charges faced by those accessing finance through payday lenders with the introduction of a cap, so why are the banks being allowed to charge such exorbitant amounts?

The Competitions and Markets Authority (CMA) recognised the issue when it conducted its review into the Retail Banking Market – but it failed to deliver any real solution in its report published last summer.

It fell short of proposing an independently set maximum cap on charges – instead allowing banks to set a cap themselves, at a level of their choosing.

This cap as proposed by the CMA looks like it will be ‘business as usual’ for the banks, and will likely do nothing to stop the deepening of a person’s debt crisis with punitive and disproportionate charges.

We need a proper effective cap, set by and enforced by the Financial Conduct Authority (FCA), for it to have any impact on helping — rather than worsening — the situation for those people most in need.

The CMA passed the buck firmly to the FCA which has, thankfully, agreed to recognise the issue as part of its review into High-Cost Short-Term Credit.

However, in the meantime, financially vulnerable customers are being pushed further into debt by these high unarranged overdraft charges.

Action on charges

That’s why, in a debate in Parliament today, I’m calling on the Government to take action now.

I want the Government to set a maximum cap on overdraft charges to stop banks being able to impose charges that can be as much as 7.5 times higher than the maximum charge on a payday loan.

Today’s research is invaluable in highlighting the true nature of these charges, I’m extremely grateful to Which? for all the hard work and campaigning they are doing on this issue. I’ll continue to work closely with Which?, and do what I can in Parliament to put an end to these exorbitant charges.

This is a guest contribution by Rachel Reeves MP. All views expressed here are Rachel’s own, and not necessarily those shared by Which?.

Have you been hit by an unarranged overdraft charge? Do you think enough is being done to crackdown on these charges?

janine bushell says:
16 February 2017

Halifax advertised a personal loan amount on my internet banking home page of 3.3 APR but when I went to apply it increased to 8.9. Despite speaking to three levels of staff they though nothing was wrong with this false advertising. I have banked with the for 25 years and I am now moving.

Graham Ross says:
26 February 2017

This is banks recouping all the fines they have received for miss-selling, fixing rates and all the other stuff they’ve been caught at and to justify bonuses for the top brass. I’ve been there once upon a time but not now. I work within my budget these days. I can’t stand all the hassle.

Eric Lewis says:
3 March 2017

No one seems to see the Elephants in the room I was a member of the F S A (Federation of Small Business) which was set up to reduce the incidence of Bankers taking advantage of small business’, even forcing them into bankruptcy and taking their assets. The F S A grew and grew and eventually became like our Civil Service mostly a bunch of self important Fat Cats that enjoyed the sound of their own voice. The Financial Controllers are now wasting our hard earned money on a high speed Train service that might let the rich get back to London that very same day and reaping high charges from us poor souls that get caught with the falsified Parking Charge they impose if we drift into a Bus/Taxi Lane!…… I could go on but The North and especially Scotland are forgotten even when the Southerners are reminded that the Condensation Engine i.e. the start of the Industrial Revolution and many of the things we take for granted came into existence in these two areas (Perhaps it is the darker cold nights and the cleaner fresher air.. Oops apart from Glasgow) But in my small Business even I was affected by the horrible local corruption (Brown envelopes) and the Cartel of various “Business” groups that are Lawless but never appear in Court. Maybe the slave days are still with us with most of our products being made in shall we say awkward parts of the World that the Fat Cats supply with their fly deals with money to out price us small manufacturers here in what was Great Britain,,,. Good luck to us all that have too survive what used to be called the Rat Race…..Take Care…Eric


The condensation steam engine, I believe, originated with Newcomen (ex Dartmouth) and was used to pump water out of the mines in Cornwall – which is in the South. I may be wrong! But it matters not – innovation has occurred all over the UK. There are advantages in living in the north – lower property prices and lovely countryside to name but two.


A debate took place again in Parliament today on unarranged overdraft fees that saw a number of MPs speak. Rachel Reeves MP outlined proposals for a draft bill for regulators to cap the maximum amount that banks can charge customers for unauthorised overdrafts, similar to the limit imposed on charges on payday loans of £24 a month. The debate can be viewed here:https://goo.gl/dQpr5O


The proposal by Rachel Reeves for a draft bill [subject to luck in the Private Members Bill ballot] is welcome but it should have been coming from the government who could probably introduce it by way of regulations rather than primary legislation. £24 a month is still a stonking great fee and there will be interest at a high rate on top of that. I don’t support Which?’s view that charges for unauthorised overdrafts should be in line with charges for arranged overdrafts as there are clearly extra costs and potential liabilities with unauthorised overdrafts, but any charges should not be exorbitant or grossly disproportionate [to the extent that they become extortionate]. I also think any charges should be accompanied by supportive advice on money management and a plan for getting back into a manageable situation with debts having regard to the customer’s income and expenditure.

As a matter of interest, has Margot James [Parliamentary Under-Secretary of State for Small Business, Consumers and Corporate Responsibility] made any contribution to the debate?


I wish we would encourage people to arrange overdrafts rather than placing the emphasis on those who either do not bother, or would be refused. We should also consider controlling the fees more fairly for those who do bother to arrangea legitimate overdraft. Many pay 75p a day if they use the facility – potentially £22.80 a month – even for very small overdrafts. Perhaps they deserve the attention first?

I’d propose either £0.75 a day or the going interest rate, whichever is the least. For others, perhaps the best solution is to ban people from going overdrawn unless they have arranged a facility with their bank?


“For others, perhaps the best solution is to ban people from going overdrawn unless they have arranged a facility with their bank?”

I agree. Note, however, as has already been noted here (or elsewhere on W?C) that there is really no such as an “unarranged overdraft”.

By default, many banks set up (or “arrange”) accounts so that overdrafts are possible, up to a nominal (“pre-arranged”) limit but also that, by means of the how (and when) the resulting charges are levied, the arrival of the charges breaches the “pre-arranged” limit, taking the customer into an “unauthorised” overdraft, so that punitive daily charges then apply.

To avoid this, customers need to arrange to remove those toxic arrangements. But it would save them a small fortune (and deny a lot of easy pickings for the bank) if the banks were not allowed to set them up in the first place.


Yes, penalising a person already on a penalty is a pretty despicable practice. Hitting people with another whack does nothing to encourage a responsible approach to financial self-control and shows how the banks’ automated control systems have taken the humanity out of banking. A complete cultural shift is required that stops people getting into unsustainable debt in the first place.

I expect a lot of overdrafts have credit card repayments at their root and, because CC companies are out of sight behind a wall with no face-to-face interaction with card-holders, they have tended to operate in a robotic manner knowing that their customers’ debts will be for the banks to deal with.

Personally, I don’t think people should have to pay a charge of more than £10 a month for the mere fact of being overdrawn without approval; interest covers the bank’s ‘losses’.


Agreed. The banks have always had the remedy at their disposal, if they wished to implement it. That they haven’t (for reasons best known to themselves) is hardly the fault of the customer.


“the mere fact of being overdrawn without approval”. What if they are not able to repay the amount they go overdrawn? It is hardly helpful to the customer. “Approval” should mean the bank assesses the client as capable of managing repayments – in the clients best interests, surely.


“Being overdrawn without approval” is the same as having an unauthorised overdraft. There is a monthly charge just because the account is overdrawn beyond the authorised limit and this repeats month after month even if the debit is diminishing and even though there is little extra administration involved. I am suggesting that an extortionate charge is unfair and doesn’t help the customer get back into authorised territory. My feeling is that a charge of £10 a month is more than adequate to meet the bank’s legitimate expense in supervising the unauthorised overdraft. If a customer cannot, after due allowance of time and attention, pay the outstanding debt then the bank has the right to take recovery action. Making the debt worse by piling on charges that the bank knows are not repayable cannot be a fair and just method of dealing with unauthorised overdrafts. I maintain there should still be serious consequences because using money without authority can never be right. I know why it happens and I know why people do it: they realise they will never get approval to go overdrawn so they just do it anyway. But the banks’ knee-jerk reaction to that needs to change and they should be under an onus to speak to the customer and work them through their difficulties. It takes time, it requires initiative, and it needs compassion; if bank staff can’t do it then they are in the wrong job. Compounding the amount people have to pay back might sound clever in the performance review meeting and bump up the bonus but it is not socially responsible in my opinion. It is tempting to think that banks actually allow people to slide into debt so they can milk them; it must be made clear by the Financial Conduct Authority that there will be no profit in that.


How do you feel about responsible customers who go slightly over their “arranged” overdraft – say £10 – and incur a fixed £0.75 daily charge? Should Which? be tackling this?