/ 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?


Not only do we need to see an end to punitive interest charges but in my opinion those who have been charged deserve a refund, in the same way that those who have been mis-sold PPI are eligible to refunds.

Please not in the same way, I’m just getting used to the hope of no more PPI ads, phone calls etc.

I agree, William. Hopefully the banks involved will already know which customers they have overcharged.

I strongly agree that these obscene charges need to be reined in. I’d also agree that those who’ve been a victim of this rapacious practise should be compensated.

An important issue but are payday loans really a viable solution?
[Sorry Paul, we’ve removed part of your comment as we don’t allow promotional material on Which? Conversation. Please ensure your comments align with our community guidelines. Thanks, mods]

Paul ryan says:
8 February 2017

So everyone can talk about it but not provide any actual solutions.


Hi Paul, you’re welcome to share your thoughts on solutions to unarranged overdrafts, like everyone else on this discussion, however we will not permit promotional material and a direct link to a website would be considered that. Thank you

Is it only me that’s been aware of this for years, in fact I’m sure which first mentioned it years back.

Whilst charges should be controlled to represent the cost and risk to the bank, with element to deter people from withdrawing money they do not have, why do we not help people avoid such charges altogether by encouraging people to arrange an overdraft facility?

If you think you might go overdrawn occasionally then ask your bank for an overdraft limit. If they agree then you will pay, in the main, fair charges. If they do not agree then it may well be because you are not a suitable candidate; maybe not capable of repayment or not reliable to handle it. By then taking unauthorised funds from the bank you are abusing your contract. Defaulters will be taking money effectively from you and me.

Those who criticise the charges could play a useful role by promoting ways that would help such people manage their finances properly, by giving them expert advice, providing budgeting tools, and pointing to organisations that can help if they get into financial difficulty. I would be happy for my bank to proactively provide face to face advice and help for appropriate customers, and to develop paper and software tools. An industry-wide approach from the BBA, government, Citizens Advice and perhaps even Which? would be best. The latter offer free booklets on various subjects through tv ads; maybe a little part of Member’s subscriptions could be used to develop a booklet on banks, overdrafts, budgeting and managing personal finances as part of its social role?

I agree that a great deal could be done to encourage people to behave responsibly and seek advice but the fact is that the banks are providing overdrafts as a SERVICE and one that is very lucrative, even allowing for the losses incurred when banks are unable to recover their money and costs involved in handling debtors.

I have no personal grudge since my bank has never charged me a penny in interest but I am very concerned that we have long condoned banks exploiting many of their customers.

Perhaps this “service” should be stopped then? With its unintended consequences such as a car insurance not being paid? Banks show the charges you will incur; you agreed with them then you have opened your account. I have no problem with the charges being examined by the authorities for fairness, but the way to avoid them is to arrange an overdraft or avoid going overdrawn. Customers have responsibilities.

The bottom line, surely, is that it is the customer that generally instigates the charges by going overdrawn. That is the problem that needs to be tackled, and the banks already provide a way – arrange an overdraft facility. So why do we not place the emphasis on the customer? If you ran a shop, would you let customers take stuff without paying in the hope they would do it later? You might, however, give a customer credit if they asked you in advance and you knew they were reliable enough to pay you.

Banks are commercial institutions, not providers of a social service, and the money I pay them is not there to fund those who abuse their accounts. The state is the provider of funds and services for the vulnerable out of the taxes you and I pay.

You are preaching to the converted, Malcolm. I take financial responsibilities very seriously.

I have not suggested that a bank or other commercial institution should provide a social service. They need to get rid of their punitive charges and keep in contact with customers who appear to be getting into financial difficulties.

Malcolm: you’re continuing to ignore the issues of younger people with set costs that can fall in ways that defeat the very meagre overdraft limit they’re allowed. And, simply put, the charges levied bear no relation to what it costs the banks to provide the ‘service’, such as it is. They’re profiteering, and doing so on the banks of those least able to afford it. In my view that’s little short of criminal.

Fred says:
9 February 2017

Comments are fair, but ……
…. I have been stung when it is the bank’s own charges that have put me over my agreed lim

Michael P says:
8 February 2017

Unauthorised overdrafts and consequent charges are voluntary. Perhaps there could be a compromise, an exception, of one such occurrence per year for demonstrably truly unforeseeable events.

If you took a savings book into a post office or building society with £100 in it and asked to draw out £120, they would not let you have it. So why do banks let you draw money you don’t have?

As long as banks allow you to overdraw on an account without prior arrangement, people are always going to take advantage of it.

No one wants to be in a position of having to look for pennies in the sofa in order to feed the meter or buy food. It isn’t right to generalise on the term “vulnerable”, and make a mental picture of a typical person/family finding themselves in such poverty. Some may indeed be feckless but there are many who get to this state while trying desperately to live as decent law abiding citizens. I agree that banks have a duty to charge a fair rate for unarranged overdrafts and ripping off the poor is immoral. However, it says something about the system, and our social care, that unarranged overdrafts are available. It seems obscene that those with the least ability to pay are subject to extra debt in order to live. Either stress levels are sky high as people try and cope, or folk switch off and carry on increasing debt because there is no other option available for them, especially as the increasing debt doesn’t buy the weekly groceries but is accrued exponentially by the financiers. Yes, we need to reform the banks and refute the argument that they are simply charging for loans that were not agreed. It is their responsibility to prevent this debt in the first place and our responsibility as a caring society to see that those in need are not borrowing money that they cannot repay. That, of course, is a massively complex dilemma and one that has never been properly resolved from the Victorian workhouses onward, not least because we don’t wish to control our population and stop them living in a free society.

If I have read your thoughtful reply correctly, one thing I disagree with is the banks’ role (I may have misunderstood). “those with the least ability to pay” do get into financial difficulty but it is not the role of a commercial institution, such as a bank, to give them money. For one, they do not have the confidential and personal information necessary to determine who is a genuine and worthy case but secondly, it is not in their remit to give other depositors’ (yours and mine) money away as benefits; that is the job of the state, out of our taxes.

I strongly agree with Vynor. I have no problem with commercial organisations making a fair profit but it’s not just the vulnerable and feckless that are targeted by SOME companies. Take the insurance industry, which is well known for price hikes even when there have been no claims or changes in risk. Not all companies do this, of course.

Then deal with those companies that you are happy with. Competition provides that opportunity. I am content with my banks, credit card providers, house and car insurance. I have treated them properly and they have me. When I have had a problem (rare) it has been resolved easily and well. That is what Which? Recommended Providers is there for if you need guidance.

No Malcolm. It concerns me greatly when certain companies exploit some of their customers. As a society we need to think of others and not just our personal circumstances.

I do hope the inference is not intended as I “need to think of others and not just our personal circumstances”. If you read my comments carefully you will see that I do, indeed think of people who are genuinely in need of help. I do not need to be informed of the way to think. 🙂

We have the freedom, in our society, to vote with our feet, choose who we deal with and do something about a circumstance we do not like. That way we might influence the way those institutions and companies we disfavour behave. That is better, in my view, than doing nothing and expecting others to put things right. Unfortunately we do not have the same freedom with state institutions – monopolies. Those who would like railways, banks, energy companies etc taken into public ownership might consider the adverse consequences.

I have said on numerous occasions that I am not in favour of a return to privatisation, but what has replaced it leaves a lot to be desired. I suggest that we need proper control of those companies that are obviously acting against the interest of the vulnerable and many others by charging punitive interest rates.

We are both fed-up with retailers attempting to deny us our statutory rights over faulty goods. Like the punitive interest rates charged by banks, this is exploitation of a significant number of customer, though it is also against the law. I would like it made illegal for businesses to exploit customers, by any means. Maybe the banking sector would be a good place to start.

“It is their responsibility to prevent this debt in the first place” Really ? Why not make it the responsibility of the milkman, postman, the schools, the councils, the parents, h*ll, why not everyone else too. Why is it never the responsibility of the individual.

I lost my job over 6 years ago, and I’ve still not needed an overdraft of either variety or a payday loan. I don’t life a lavish lifestyle. I don’t smoke or drink (cups of tea / coffee ( not from ripoff coffee shops) )or gamble and I’ve never felt I can afford a mobile phone so I don’t have one. Yes my life could be filled with alot of things, but I live within my limited means. Could I be happier, probably, but am I content with my lot, yes. Cos I know it could be a lot worse. FYI I dream of interest rates getting back to 15% , as this time I won’t have 2 mortgages to service.

I should also add, that I refer to this time in my life as practicing for retirement and I can’t wait to get my hands on my money, hopefully before the rip off pensions companies have drained it with charges. The FTSE goes up they levy an annual charge , the FTSE goes down, oh look the levy annual charge. Now there’s a nice little earner for the few.

This discussion is like an old, stuck record. Which? has been fighting for years to ensure a fairer deal for those who run aground on the hidden rocks of banks’ Ts and Cs, often through no fault of their own. Those valiantly defending the poor, downtrodden banks should remember that it was those very banks that plunged the world into the worst financial crisis in history, for which they and their directors took not one shred of responsibility, immediately after which they went around bolting empty stable doors and ramping up these egregious interest charges for those younger folk, now struggling and unable to get salaried employment because of what? That’s right: because the financial world had been broken by the banks.

In the simplest possible terms those struggling to manage because of a situation brought about by the banks should not be doubly penalised by those same banks who gleefully levy punitive charges which are already illegal for payday loans providers.

As the Which? representative on BBC this morning said ‘We don’t think it’s fair’. I agree and I cannot comprehend how anyone can think otherwise.

Currently those in financial difficulties sometimes have access to money that they have taken from the bank without permission, thus accruing and increasing debt over time. This money should be unavailable. How they survive instead is a whole new issue which I don’t even attempt to address. Maybe such debt reduces the freedom they have as individuals and increases the control society places upon them. Ouch!

The trouble is, we don’t all like the consequences of our actions or inactions. 🙁 The more we are protected from the results of our irresponsibility. the less likely we are to mend our ways.

I do not include the “vulnerable” – by which I mean those who are not capable of looking after their own affairs. Family and society need to provide them with the help they need.

Today Rachel Reeves MP has spoken in Parliament on the issue of fees and charges on unarranged overdrafts. You can watch this here: http://www.parliamentlive.tv/Event/Index/0f1329fc-852c-4148-8b98-d4a76b7f44f9

Did she suggest that people regularise their financial affairs by encouraging them to arrange an overdraft facility with their bank? No headlines in that, I suppose. 🙁

Hi Malcolm, I do understand your point on this issue. But what we’re highlighting today is that given there’s a cap on the amount that a pay day loan can charge, there should be a similar charge on banks. We’ve heard from a lot of people who’ve been stung by these fees, cases where someone went into their unarranged overdraft by 11p and was charge £15 and another where they went overdrawn by £2 and were charged £90.

Of course, we are encouraging people with current accounts that could slip into their overdrafts to ensure that they speak to their bank and explore an overdraft facility – this is the message that we’ve been giving in the media today and you’ve prompted me to update the links to this convo to include our overdrafts advice.

For info, this is our best bank accounts for arranged overdrafts http://www.which.co.uk/money/banking/bank-accounts/guides/best-bank-accounts/best-bank-accounts-for-authorised-overdrafts

And here for unarranged overdrafts – http://www.which.co.uk/money/banking/bank-accounts/guides/best-bank-accounts/best-bank-accounts-for-unauthorised-overdrafts

That has nothing whatsoever to do with this debate, Malcolm. This debate is about fairness – not helping the vulnerable, education or any one of a raft of other red herrings. We can have a debate about how to help people cope, manage finances or whatever, but this is about the rapacious, immoral actions of the thieving banks – the same banks that caused the worst financial crisis in history.

I see you have a view on banks, Ian. However they were not alone in creating the financial crisis. Those who caused house prices and mortgages to spiral, who took on large debts, who lived on increasing credit, a government that had not got the guts to deal with these problems, were also party to the financial disaster (eventually averted). I bank with Nationwide who, as far as I am aware, were not a “rapacious” thief at the time but are paying the price.

We cannot divorce our own actions and continually blame others. We all share in what went on.

This debate is about unarranged overdrafts. I am not in favour of unarranged overdrafts when people can deal fairly with their bank and arrange an overdraft facility, without punitive charges, if they are eligible. If they are not considered suitable, they should not remove money they do not have without permission. This is very relevant to a debate where, in my view, we are putting the cart before the horse. If someone has run short of cash and takes your wallet you might think it untoward. If they asked you in advance, you might well consider helping them out.

9 July 2016 / Money
“Unarranged overdraft fees that cost more than a payday loan”
This was another Convo which did not even suggest the best – and obvious – way to avoid substantial fees was to arrange an overdraft facility. Indeed it actually suggested “We think unarranged overdraft charges should be set at the same level as arranged overdraft charges.” What message does that give to those people who look after their finances, honour the conditions they agreed to when opening their account and deal responsibly and fairly with their bank? Is this official Which? policy?

Are Which? also still supporting payday loans with extortionate interest rates? I remember they were hardly critical when in front of the Parliamentary committee. An interesting way to protect consumers.

This debate is not actually about unarranged overdrafts; it is about the simple fact that banks charge several times what the much-maligned payday loans businesses can charge.

You’re absolving the banks of any responsibility and instead placing the blame on – apparently, anyway – “those who caused house prices and mortgages to spiral”. Now, if I remember correctly it was lending policies that caused house prices to rocket, mainly because people were able to borrow 100% of the house price. Now, let’s think: who were the lenders? The banks and building societies, although with the singular exception of Nationwide, most member-owned societies became banks. So. by simple logic it was the banks who created the problems, as much as you would like to believe it wasn’t.

And please stop resorting to the tired analogy of the wallet and thief. There’s no comparison, since the banks happily advance the money. Why do they do that? It’s not for any good reason other than to garner excess interest. If you want a better analogy, it’s someone who gives – not merely offers – the contents of their wallet to everyone, then asks for three times the amount back.

And you still haven’t addressed my point about those who are unable to arrange an overdraft sufficient to cover their needs.

“This debate is not actually about unarranged overdrafts”. The intro says: “The latest Which? research published today has again highlighted how banks are still cashing in on customers who rely on unarranged overdrafts.” Seems clear to me what the debate is about.

You need borrowers as well as lenders. We all took part (well many of us) in the credit boom, and the government allowed it. So mass responsibility, I’d suggest. Generally it was investment institutions, rather than people like Nationwide. 8 years down the line I’d suggest is a bit long to blame people’s financial circumstances totally on the past.

“And you still haven’t addressed my point about those who are unable to arrange an overdraft sufficient to cover their needs. “. It is not commercial companies’ job to make up a shortfall in people’s income. You are probably a shareholder who relies, or will rely. on income from banks to support your pension. I would not be happy about my bank giving away money to boost incomes indiscriminately. They do not have the sensitive personal information – I hope, they should not – to be able to discriminate between irresponsible spendthrifts and those who really have a genuine financial problem. The latter should receive state help, through the taxes we pay, and advice and help from their bank by asking.

However, the point is that banks will give loans, through overdrafts, at reasonable cost to customers who ask them and are appropriate candidates. That avoids the imposition of large charges in the first place. It is where we should start.

If you look at the responses of banks to the Which? press release, they send text reminders to give time to replace money before charges kick in, some do not allow unarranged lending at all, they give a grace period… The least the customer can do is make a proper arrangement with their bank.

“This debate is not actually about unarranged overdrafts”. The intro says: “The latest Which? research published today has again highlighted how banks are still cashing in on customers who rely on unarranged overdrafts.” Seems clear to me what the debate is about..

The second paragraph, which you didn’t quote, is quite clear:

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.. hat makes it clear that it’s not interest charges per se that Which? is concerned about: it’s the level of those charges.

I’m glad you “…would not be happy about my bank giving away money to boost incomes indiscriminately. ” which is, of course, about the furthest thing from what they do. No one’s suggesting that, either, so I don’t even know why you mention it. Far from them “giving away money” they’re levying interest charges which wouldn’t be out of place on a loan shark’s ad.

You then say 8 years down the line I’d suggest is a bit long to blame people’s financial circumstances totally on the past. “ but that’s exactly why the government has restricted council grants for the past nine years.

And you seem to be under the misapprehension that only those who fail to arrange overdrafts are subject to excess fees. Your argument that everything will be fine if only they were to visit their bank and arrange an overdraft reveals a marked lack of comprehension as to how the current banking and employment world operates.

Its a pity you seem to attack the commenter rather than the points made. A Convo is about comments, not commenters. However, to answer your points:
If you read my earlier comments, I have never defended excessive charges. My basic point is that the charges can be avoided by asking your bank for an arranged overdraft.
The charges made are not just interest, but may include a penalty charge for abusing the terms of your banking agreement. Just as if your credit card payment is late.
“Giving away money” happens when the unarranged overdraft may not be repaid.
The Government’s irresponsible spending lead to the recent few years of prudence to help the economy recover. If you remember the note left by Labour – the money’s all gone! – sums it all up.
I have a reasonable comprehension as to how personal banking and employment works having experienced many years of it. i have learned to manage my finances, perilous at times, whilst dealing responibly with my bank and loans.

But times have changed, and in tourist areas variable and zero hours contracts abound, whereas rent, electricity, food and insurance all require steady payments at the same time of the month.

I do not agree that the recent years of prudence were caused by the “The Government’s irresponsible spending”. As I understand it the trigger for the financial problems which caused such chaos in 2008 was the criminal actions of certain banks.

It isn’t for nothing that Dante has usurers in his seventh circle of Hell.

I think we have established and generally agreed in several convos throughout the years that there are people out there with varying types of vulnerablity, and it would be fair to say that most of us think that exploiting these vulnerable folk is immoral.

Is it fair to allow banks to cash in on vulnerable customers? Of course not. Should there be a set cap on overdraft fees? Darn right. Another couple of questions could be (apart from how do we tackle vulnerability types themselves), how much should the cap or caps be? Should it apply other institutions than banks?

But should we not also agree that people should ask their bank for an overdraft facility if they might possibly need it?

What if the bank says no?

Why would they? Perhaps they regard the person as a bad risk, as not responsible in their spending, as having too many existing debts. I think we would be having another conversation about irresponsible lending if banks were not careful about how much and to who they lent money.

Interesting question: “why would they?”. There are several reasons but the most common one is that the income is not monthly. The example I’ve given earlier of a young, hard-working person who holds down several jobs simply to get by: they earn enough to pay their rent – just – and be able to eat and heat, but because the different jobs are all part time they’re paid in different ways and at different times. Because the timings differ the bank will often an arranged O/D but only to a certain (usually low) figure. This can have the effect of occasionally causing the person to go over their limit, as DDs become due for rent, insurance etc.

The press release issued by Which? is given here. However, unlike this Convo’s introduction it also gives the individual bank’s responses., It is always good to listen to both sides.

Perhaps Which? could run a helpful article that shows customers just where to go for the best overdraft deals, how to avoid unarranged charges, how to budget and where to go if you find yourself in financial problems.

i’m not convinced a cap on charges is going to cure the issues to be honest; there are a number of solutions that banks can implement – monitoring of high overdraft users and more helpful discussion on how to manage finances; current accounts products that just don’t allow overdrafts – basic accounts; instead of charges use an interest rate that is more akin to that of a small loan; greater levels of credit referencing at the front end before an overdraft or account is granted/ opened – there are package of measures that we need banks to embrace. At the end of the day there is a cost to credit – and those that take on credit unfortunately need to pay for it.

I agree. And all that we should expect is that the interest is both fair and reasonable.


Peter says:
8 February 2017

Banks penalise customers who overdraw their accounts without pre-arranging an overdraft facility. I agree that these charges are frequently exorbitant, but when I was employed by a major bank in the early 1960s I was taught that such action by a customer was an offence under the Theft Act. I do not know whether this was true nor, indeed, what legal position now pertains.

I see a number of references to the Theft Act in the context of overdrafts, Peter. Maybe we need some legal advice but informally it might be referred to as ‘daylight robbery’. 🙁

If banks think that overdrawing is theft they should take action to prevent it. To make money out of ‘theft’, as they do, is living off the proceeds of crime.

The last time I was in court — sitting on the jury — it was explained that conviction for theft was only appropriate if it could be proved that the alleged thief intended to permanently deprive the victim of their property.

Anyone who either accidentally, unknowingly or even wilfully exceeds their overdraft limit would not be guilty of theft.

That’s interesting, Derek. Maybe we should be careful when using terms that have specific legal meanings.

I consulted W? legal on that point when a company had taken the full payment for something they never delivered. They said – sadly – that companies cannot be considered to be thieves, simply because it would be almost impossible to prove they “intended to permanently deprive the victim of their property.”.

We will have to stick with undefined terms such as ‘daylight robbery. I’ve seen payday loans described as ‘legal extortion’.

I wonder if we are looking at this Convo too broadly? Many customers who are well able to deal with their finances should be sufficiently savvy and aware to know the consequences of unarranged overdrafts and understand what they might be charged – at least after the first time – or could avoid the higher charges altogether by discussing an overdraft facility with their bank. I would not regard these people as “vulnerable”. To my mind, vulnerable people are unable, as opposed to unwilling, to properly understand and manage their affairs. This Convo is titled “Is it fair to allow banks to cash in on vulnerable customers? so should we not be discussing the special help this group of people need?

I was thinking along those lines myself before I veered off on a different tack, Malcolm. One of the complexities of this is that some people might not have been considered to be vulnerable until they got themselves into a spiral of debt and their financial situation was propelling them into a state in which they lose control of their lives and turn to extreme measures. Unless banks know their customers well they are not in a position to address their vulnerability. I think routinely hitting people with unmanageable fees and charges without some form of personal intervention is one of the dangers of the mechanistic administration of current accounts. Some of the problems stem from the fact that almost everybody with an income has to have a bank account and some people cannot cope with one for a whole range of reasons.

This is pertinent to my earlier post – above – in which I describe a situation far from unique in tourist areas, where employment pay is often variable, whereas rent, food and heating costs are not. The vulnerable need to be protected from the banks whose actions are more those of bandits than sympathetic associates.

Agreed John. Surely the place to start ids how to help people to manage their finances better.

Which? is prone to whipping up discontent with sensationalist headlines. I regret my response to such an approach can be negative, as I resent the attempt to lead me in this way. So I would question just how common this “payday loan” charge really is. What are typical, as opposed to extreme, charges that those with unarranged overdrafts pay? How long do they stay in debt? I am quite happy to confront an unacceptable situation and condemn extortion, but I do want the real and representative facts so I can arrive at a considered opinion, inexpert though I am.

The charge that banks use unarranged overdrafts deliberately to make a lot of money has been made. Howevere, if Barclays response is true – “Barclays does not provide unarranged overdrafts. Any emergency borrowing must be pre-agreed” – this rather casts doubt on that assertion.

For a dispassionate debate we need the full information. The CMA presumably consulted widely in reaching their conclusions. This information will exist.

Incidentally, if Which? feel so strongly about exhorbitant fees, why do they not persist with a campaign against unfair parking penalties?

I could provide chapter and verse on the problems some are experiencing, in no small part caused by a desire to be prompt payers themselves. And there’s another irony: banks institute these interest charges automatically, yet simultaneously allow their employees degrees of discretion. Makes it tricky to get unambiguous details.

But parking penalties are in a different class, I believe, to what we’re discussing, if only because many don’t actually drive, whereas eating, having a roof over the head and staying alive to work are not really optional .

Banks don’t have enormous extra costs when an unauthorised overdrawing occurs so a fair chunk of the charges is a penalty, and therefore punitive in intent as it is supposed to have a corrective effect. Yes, the bank has to carry out certain additional security checks to make sure it is as an authentic withdrawal and not a fraudulent transaction, it might be necessary to contact the customer about it, and some additional admin is presumably involved. It is probably also necessary to keep a watch over the account to see whether or not it is a temporary position. In the overall scheme of banks’ day-to-day financial trading I doubt if unauthorised overdrafts seriously upset their book-keeping arrangements and, based on their experience, they possibly factor in a contingency provision for such movements anyway.

Whereas I agree that customers should be steered in the direction of making formal arrangements when additional credit is required, especially since it would be much cheaper for them, that is not always practical, and some customers might know that their financial position is not favourable – indeed they might already be at their authorisable limit. So I think unauthorised overdrafts should attract the ordinary interest rates for a loan of the same amount and duration, plus an excess charge to cover the bank’s reasonable additional costs, plus a further 10% of the excess charge to represent the sanction for having breached the terms and conditions of the account.

Banks seem to want to have it both ways: they are in the business of lending money and it is very profitable for them so they don’t want to close the door on unauthorised overdrafts, yet they want to penalise people who overdraw without prior approval as if to say “You mustn’t do that”. It would be better if they got closer to their customers and found out more about why they are needing extra money and seeing how the bank could help them with their budgeting and money management. The process has been handed over to computers which spit out standard letters and statements showing the escalating interest charges and overdraft fees but entirely lack the human touch and any sensitivity. The bank has no idea of the real status of the customer and how vulnerable they might be [perhaps they don’t wish to know] so this is not really conducive to the customer regularising their position in terms of their account balance and their ability to manage within their means. They should certainly try to hold a one-to-one discussion with any customer who keeps running an overdraft for months on end and not just leave the charges , and the interest on the charges, to pile up.

I agree with some of John’s contribution, and that charges can be seen as a deterrent. Anyone who has used unarranged overdrafts more than once should be well aware of the costs. I also agree that, of necessity, the principal operation of an account is by computer with set rules. However the “human touch” works both ways, and it is the client who initially creates the situation where he has a money problem. They could take the initiative to approach their bank to seek help if they are having a financial problem. It seems to me this is where we need to devote effort – to create an atmosphere that gets both parties together before the problem escalates too far.

But the client can often not avoid creating the situation, can they? Unless they give up food, heating and their apartment / flat.

Some of the banks responses to the Which? press release:

Barclays response: “Significant changes to our overdraft structure and charges were implemented in June 2014. We introduced new text alerts, grace periods and buffer zones to help customers manage their finances and avoid fees.” Barclays does not provide unarranged overdrafts. Any emergency borrowing must be pre-agreed.

Halifax response: “Unplanned overdrafts are designed for occasional spend and the vast majority of our customers do not use them. We help by promoting several tools to make it easy for customers to stay on top of their finances and avoid using unplanned overdrafts. The process is quick and simple to revise overdraft limits and we also have an interest and fee-free buffer in place.”

HSBC response: “Where customers contact HSBC to arrange or extend and then use their overdraft they would be charged debit interest only. For the current account the majority of our customers use, the total charge for a debt of £100 for 28 days would be £1.40.”

Lloyds response: “Unplanned overdrafts are designed for occasional spend rather than long-term borrowing, and being in an unplanned position for a sustained period of time is not representative of typical current account behaviour. We have a variety of tools in place to help our customers manage their finances and avoid using unplanned overdrafts. Customers can use our free mobile banking apps as well as voluntary text alerts, and all our overdraft products include an interest and fee-free buffer.”

NatWest response: “We encourage all of our customers to contact us if they are going to enter unarranged overdraft regardless of the amount or the length of time. We offer a number of alternative solutions, such as putting an arranged overdraft in place, where the costs are considerably less. Customers are not charged if their unarranged borrowing is £10 or less and our Act Now Alert Service alerts the customer of upcoming unarranged borrowing to allow them time to transfer money to avoid Unarranged overdraft fees.”

Santander response: “We stress to customers that if they feel they may need to go into an unarranged position that they contact us to discuss their situation so that we can understand how we can help. We have a range of tools to help customers manage their money and keep track of their balance including text alerts.”

To a certain extent the banks are shooting fish in a barrel here.

Most of the folk who incur these excessive charges will be either on benefits or low wages. In both those cases, their income will be directly paid into their bank accounts, so the banks get “first dibs” on that money, as soon as it goes into the account.

This of course leaves those affected with insufficient funds to get them through until they next get paid.

Hence, after they have exhausted their available options for subbing cash off their friends and family, and after they have put the TV and the Laptop into Cash Converters again [n.b. other pawn brokers are available…] , they may nonetheless end up with another unauthorised overdraft.

Then the vicious circle repeats.

So the banks aren’t really incurring great financial risks here.

These bank customers may or may not be guilty of reckless financial behaviour – that would depend on their individual circumstances.

If someone’s income normally covers their outgoings, but the phasing might be adverse, so they run short temporarily but the money is then replaced then I would expect a bank, seeing this, to allow an arranged overdraft to cover the gap at sensibly small cost (HSBC quote £1.40 per £100 for 28 days).

If, however, someone’s income does not cover their outgoings, we cannot expect the bank to give them the money that they cannot expect to be repaid. That is not the banks’ role. That is the role of the state; only they are in a position to properly identify people with genuine financial need that should then be covered by the taxpayer.

Sadly, they don’t, and one bank which doesn’t do as you propose when you say “ someone’s income normally covers their outgoings, but the phasing might be adverse, so they run short temporarily but the money is then replaced then I would expect a bank, seeing this, to allow an arranged overdraft to cover the gap at sensibly small cost (HSBC quote £1.40 per £100 for 28 days). is HSBC. If they did then I wuld have no issue with them whatsoever.

I have worked as a volunteer helping decent, very hardworking youngsters who’ve been badly treated by HSBC in exactly the circumstances I describe.

Then try to switch to one of the many other banks. The danger is that if someone does not organise their financial affairs well they will build up a poor credit record that will impinge on the availability and cost of other financial products they may seek. It is in their interests to do all they can to be seen to be financially responsible.

You build up a poor credit record when you switch banks or credit cards, too.

I enjoy free banking services providing I remain in credit. Online banking, automated payment of direct debits, use of ATMs and even the facility to use and pay in the occasional cheques. It all runs smoothly. I might like to think that my banking is paid for because the bank has use of the money that represents my credit balance but it seems likely that in these days of low interest rates, my free banking is paid for by the high interest fees charged on those who have overdrafts.

Is this fair? I don’t think so. My suggestion is that those who use banking services should be charged a fair rate for them and that these charges should be reduced by taking into account their credit balance over the charging period. Does anyone agree that those of us who manage to keep their accounts in credit should contribute to the cost of banking services?

I should be perfectly happy to have my current account conducted along the lines you suggest, Wavechange, as indeed it used to be years ago. No service is genuinely free and if it is subsidised by those who are in financial difficulties I don’t like it.

Thank you John. I am also concerned that I can enjoy using my credit cards and not pay a penny interest because this convenient service is funded for by those who pay high interest charges. Those with prepayment meters often pay the highest charges for gas and electricity. Fair enough if the charges are in place to recover outstanding debt but it’s hardly fair to penalise people for this form of payment if they are not in debt. They are paying in advance whereas most of us pay in arrears.

The charges on arranged overdrafts are generally “fair”; I don’t think HSBC’s £1.40 per £100 for 28 days would be considered otherwise. If Barclays, for one. do not allow unarranged overdrafts then they are not getting “high interest fees” to deliberately exploit us and make excessive profits as a result.

I’d like to see more of the facts, not just what seem the exceptions, to understand the true extent. The CMA’s Retail Banking Market Investigation *available online) has many pages of information and comments on overdrafts, both arranged and unarranged. However, for reasons of compliance with the Enterprise Act on disclosure, data for individual banks is not given. Since Which? took part in the consultation they, hopefully, will have the data. What is apparent is that a small proportion, but a fair number numerically (because there are over 60 million account holders), are “heavy” users of unarranged overdrafts. I’d like to know how many of these are well aware of what they do and the costs they incur (clear from their bank statements) and how many are unaware of what they do and the consequences because of their limited capabilities. If that information is available then we know who to target with help.

I think the free credit period for those who pay off their balance in full by the due date is also funded through the merchant service charges that also impact on all who shop where credit card payments are permitted [that is, almost everywhere].

I found on the one occasion a few years ago when I wanted to pay for something over several months the credit card company immediately raised my interest rate by seven percentage points . I soon found other ways of settling the account but I felt there was a lack of faith and goodwill in that reflex reaction which is so typical of the banking mentality. Wait until somebody is down and then put the boot in. This is why there is so little trust in the financial services sector. I am sure it is possible to manage money without being mercenary.

Perhaps we can look forward to trusting financial services more in future. Despite my concerns, I am happy with the way that my bank has behaved to me over the years. I am also happy that we have the Financial Services Compensation Scheme to protect savers and maybe other sectors could introduce something similar to protect their customers.

People should learn how to manage the money the have and get not expect to borrow at a whim It is very easy to keep all your finances under check and know if you are going to be overdrawn Do not spend unless you have the money to pay even when you use your credit card

Unless you cannot avoid incurring charges through DDs, often compulsory when renting.