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

It is good to read a post from someone who has recent experience of being in debt. I suspect most contributors to this and similar topics are financially secure – and I hope you become one of them.

Annest, if you can show the bank what the irregularity of your income is but that, on balance. you earn more than, or equal to, what you withdraw then I would hope an arranged overfraft would provide the buffer you need at a reasonable cost.

I have always disliked that presentation of my financial position. I don’t regard my ‘automatic’ overdraft facility as available money; it is a resource of last resort and should not be confused with cash in the bank. I don’t need reminding that I can access additional funds if things get tight and I would actually prefer it if I had to notify the bank – which could easily be done on-line – if I was going to enter that zone. It is an imprudent gesture to those who do not check their balance and coast along knowing that this flotation collar will automatically deploy without any action on their part. That contributes to irresponsibility in personal financial management.

I don’t know whether these ‘automatic’ overdraft limits are ever reviewed by the banks or just keep rolling along indefinitely. I expect for some people they are part of their monthly spending plan which means that any unplanned expenditure automatically tips them into unarranged overdraft territory. I am not sure that every customer has an ‘automatic’ overdraft facility, though, and some might fall straight into the high-interest high-charges pit, although, according to Malcolm’s helpful round-up of the banks’ responses to this campaign, most seem to have a fee-free buffer zone. They also say they go out of their way to inform their customers how to manage their money to avoid high fees and charges; I wonder how – I cannot say I have noticed much publicity in banks or information directed at this worthy endeavour, unlike the big posters encouraging people to take out loans and lifestyle insurance products.

Credit card companies regularly review their customers’ credit limits according to their spending profile. One of mine was reduced recently because I had been making little use of the available credit [because it is my habit to repay the full balance every month]. My first thought was that it was a bit inconvenient because I liked having a relatively high limit in case I wanted to make a major purchase, but on second thoughts I am quite happy with the reduced limit [it is still sufficient for anything you can buy on the high street] and it means that we would have to stop and think before plunging into a large expense and make a simple telephone call to increase the limit if necessary. Making us stop and think is a useful discipline.

The difference also excludes uncleared funds.You will also need to account for unpaid cheques for example and any forthcoming automatic payments. So relying on the “available balance” without a knowledge of your financial commitments is dangerous anyway. It is, however, accurate at that instant in the funds you have avaialable and, as a responsible account holder, if you choose to borrow temporarily on your available overdraft you know you will not incur exceptional costs.

I have had two credit cards since my mid-20s and always paid off my balance. One I kept for large purchases but the other one lived in my wallet and was used for telephone orders. This card and account were obviously at greater risk of fraudulent use so I regularly asked for increases in credit limit to be reversed. I said that I would ask for a higher limit if I needed it. That worked for some time, but eventually the company resumed taking control of my credit limit. In my view the customer should be in charge of the credit limit on their cards – subject of course to the company’s agreement.

Many years ago my bank invited me to have the facility of a £200 arranged overdraft, which I agreed to. It stayed at the figure for years but now it is £1700. Better than an unarranged overdraft I can’t help wondering if the bank might be encouraging me to spend money I don’t have.

I don’t see why the available overdraft could not be shown separately rather than being consolidated in the balance available [as you say, subject to impending outgoings].

I keep a calendar of automatic payments and perhaps banks should offer such a facility within their internet banking system, especially now that so many people choose paperless billing for their utilities and might overlook an e-mail for an irregular charge like the water bill.

My cheque book still includes pages for keeping track of the current account – I expect most banks do the same. I wonder how many people use them.

A little tip: I arrange for my council tax to be paid by direct debit over ten months instead of twelve. This gives me two months, February and March, without this large outgoing, so I have tried to organise other annual payments [subscriptions. memberships, TV licence, etc] to fall due in this period. This smooths the expenditure profile throughout the year.

Maybe those who would like their available balance to exclude an arranged overdraft would like to join my bank. They show, on line and on paper, the actual balance available with the overdraft limit shown separately. Just checked my other rarely used bank and that separates the two also. I wonder how many banks actually combine them. Generalisation can be misleading.

I have just checked the Nationwide’s internet banking site and they show the actual balance available without consolidating the approved overdraft limit. That is shown elsewhere on the site and provides an option for increasing or reducing the amount – I did not test it to see if it was possible to remove the automatic limit entirely but I noticed that mine, at £500, was much higher than I thought it was; I obviously have not checked that part of my statement in a long time. On the website I also noticed that it said “Overdrafts are repayable on demand”.

Overnight Nationwide have completely changed the layout and appearance of their internet banking log-in page. I was surprised to see the new page and was concerned whether it was an authentic site or a clever scam attempt. Internet banking customers have not been sent any advance information that a change of log-in process was being introduced so I telephoned Nationwide to seek reassurance that they had indeed made such a change and that the new page was genuine. After discussing it with a ‘consultant’ and a senior person I was satisfied that the new log-in page was authentic [I asked them to describe it to me as I looked at it on screen]. It would appear that they had not given any thought to how customers might react to such a change and promised to feed back my concerns to senior management. I pointed out that the Nationwide routinely sent me post-coded e-mails about all sorts of banking matters and should have thought to send one out to prepare customers for this alteration. There still seems to be a naivety about banking security even in the banks and building societies themselves.

Barclays do not allow unarranged overdrafts. It would be interesting to know what happens when somebody reaches the point of overdrawing – do they just return a direct debit, bounce a cheque, and refuse to pay a standing order? Perhaps they try to contact the customer, but what if they are away or have not given them their phone number? I don’t think my bank has my mobile telephone number for receipt of a text message.

Very well said, Beryl.

Thank you Ian.

I agree. We can talk about this until the cows come home but it’s good that we have people like Rachel Reeves who are both prepared to take action and might stand a chance of being listened to.

Lauren has provided a link to Rachel’s speech in the House of Commons: https://conversation.which.co.uk/money/banking-overdrafts-unarranged-fca-cma-rachel-reeves/#comment-1475450

It starts at 11 minutes into the video.

Banks can currently get all the money they need on the money markets, it seems, so do not need to pay higher rates to private depositors to attract funds they don’t need. If you need money long term then the best way is probably a personal loan; my bank charges between 3.4% and 4.5%. My view on arranged overdrsafts is they should be used to cover short term gaps.

Perhaps one solution is to have some form of peer to peer banking specifically set up to help vulnerable people, specialising in their needs.

“The bottom line. Retail and commercial banks are essential for the smooth functioning of an economy. Most large banks have specialised divisions that deal in retail banking and corporate banking; both businesses are among the largest profit centres for most banks”

Source: investopedia.com – Retail Banking v’s Corporate Banking

Some banks give a free buffer for this very problem, they give grace periods and enrollment for automatic text alerts to allow you to regularise your account before charges kick in. I don’t understand though how your £2 overdraft, and charges, was not noticed before it got out of control. Did you contact your bank and point out the out-of-all-proportion charge? I met a similar situation with a little-used bank account that I topped up when it was needed – but forgot one month. The result was accumulated charges on my monthly statement. I contacted the bank, pointed out my mistake, suggested they could revert to an alternative interest charge rather than a fixed daily amount, but with no request to do any more. I had a phone response to say the charge had been cancelled and would I like to enroll in their mobile text alert service. No complaints there.

I am afraid Mr Duxbury must have thought that the banks create the finance rules, this is the problem which this debate is following. The FCA is being asked why there are no rules, especially where one lender is capped at £24 and another, for no apparent reason, is charging £90?.
The banks severely contributed to the dire financial situation our country is in by not keeping to the Laws of banking, by infringement of the inter bank lending rates etc.It is not a fair society which demands that the poorest and most indebted are fined to bale out the banks.
I am an ex bank employee.

But by allowing customers to draw on an “Unauthorised” Overdraft the banks are, implicitly, authorising it. If they weren’t then they wouldn’t advance the cash. They can’t have it both ways.

They cannot win whatever they do. If you pay your car insurance by monthly DD and it would take you overdrawn, and your bank refuses to make the payment, you can end up driving without insurance.

You can, as a customer, opt out of going overdrawn, in which case the bank makes no payments that would allow this. Barclays apparently do not allow unarranged overdrafts. So perhaps we should ban unarranged overdrafts – is that what we would prefer?

Banks encourage you to enroll in a text alert scheme that tells you if you are going overdrawn, gives a grace period, and thus allows you to put matters right. Equally, as money is important to almost all of us, we should keep proper track of it then we would know if we were likely to go overdrawn. Banks offer means to help us do this. Many are apparently serial unarranged overdrawers – knowing the costs they presumably know what they are doing.

We need to place substantial responsibility on the customer, who should treat their money responsibly, and talk to their bank or seek advice if necessary. As for those genuinely incapable of properly looking after their finances, we need to focus on how we help them.

They can win – and do most of the time. They need controlling, becuse without controls they’ll continue to ride roughshod over hardworking but low or irrgularly paid people.