/ 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?


One size doesn’t fit all and neither does a charging formula but the Banks often have different interpretation of their own rules and can prove intransigent when faced with a customer complaint.
Unfortunately a fact of life is that those who can afford it most find it easier to borrow and at less cost!

People are well aware that ‘punishment’ overdrafts exist, so they should either arrange their overdraft to cover future short falls, or ensure that they manage their accounts, and spending, so they dont fall foul of them.
Alternatively, obtain a credit card, set up an automatic minimum payment, to avoid penalties on that, and use the credit card to cover unexpected purchases, so avoiding the banking penalties that way. A credit card will usually give a much greater, ”overdraft” than the bank, and will incur no additional charges, except interest, and if purchases are repaid within the minimum period, not even interest
In addition, you will have a second line of protection on purchases, to get refunds, if the goods are faulty, or if ordered by mail-order, they dont arrive, or arrive damaged.
Simply put, manage your finances correctly, and you wont have problems.

Over the years I have had to learn the hard way especially when my children were young,I found my bank very heartless and uncaring

I`m currently going through a process of investigation Via the Ombudsman Service of a well known High Street outlet. My use of repayment for a credit card is arranged. However, this outlet have persistently charged late payment fees even though the arranged payment goes out on time. All and any communication with them came to nothing. The investigation by the Ombudsman Service has jolted them but they are lying through their teeth. More as it develops.

Don’t raise your hopes with ombudsman service. I am surprised that it is not common knowledge that the ombudsman gets ‘funded’ by the very outlet/firm/bank that you are complaining about.

Your opponent technically pays their wages. Usually £500. This is at the very least, a conflict of interest.

So they tell the bank, solicitor (or whoever) that there is a complaint against them. There is a little bit of pass the parcel from one to the other whilst you wait, when the organisation is a member of the ombudsman scheme, they are not bothered because they know they will not lose. They even TELL you to go to the ombudsman.
Of course the Ombudsman will deny this and say they are impartial. They are not.

I have been through the investigation procedure with the ombudsman which finished last month, after waiting ages.
I had all the evidence ready and the investigator dissected it and said that she upheld my complaint but it was a ‘Preliminary Decision’ (What?!!). She asked the con man in the Conveyance firm to return money he was not entitled to.
He refused, and now it is going to another department,..another Ombudsman! 100’s of staff. Not paid by the government, but it saves the government benefit money by having all these people working there.

So what is the point of the ombudsman if they are ignored anyway when it is clearly an extortion matter?

The ombudsman will always support their paymasters in the end. It just means that the financial industry either get away with it or have more time to lie.
Be careful, if you go to a small claims after going to an ombudsman. If they have not upheld your complaint, the court is unlikely to oppose their decision. You will probably lose your case.

My friend got back £650 although the well known bank overcharged her on a mortgate by over £3.000. She thinks she was only ‘awarded’ this paltry amount because she mentioned a publication she works for.

The Ombudsman is draconian and does not protect/help the public. It must be updated and government (people) funded to make it fair and uncorruptable.
Look up Ombudsmanwatch.org Unfortunately they are in Scotland. We need one here in England.

Good luck.

Heather says:
16 February 2017

I couldn’t agree more. I found out that the Ombudsman was funded by the banks they are supposed to be investigating while looking into employment with them. I was so disgusted I immediately withdrew my application. I had gone to the Ombudsman to complain about the behaviour of the NatWest Private Banking Team which resulted in the loss of my job. Everyone I spoke with who was independent of my case told me I should have had my complaint upheld but it wasn’t. Even the FCA were of no use. It is in my opinion that NatWest lied about what had happened and because I couldn’t produce any evidence as I was not in a position to record phone calls the FOS acted in favour of NatWest. How can they honestly say they are acting impartially when they are funded by the organisations that are being complained about. NatWest got away with murder and nearly pushed me to an early grave.

Jackie Real says:
10 February 2017

read the info on the link above – a good synopsis of the problems with banks and the law as it stands. The law needs changing to protect benefit claimants losing money to bank charges. The government insisted bank accounts should be used so they should then protect the people adversely affected by poor banking practice.

If there is a cap other customers who do not have overdrafts are likely to be charged more for the services they require

Not sure. I accept banks do not really have their customers’ interests at heart but neither are they supposed to be philanthropic institutions. Using an unarranged overdraft is making use of a concession by the bank, to which the alternative action would be simply not to honour the cheque, direct debit etc and not allow a machine to deliver cash. No fuss is being made about accounts which do not allow overdrafts.
I think that allowing for the occasional error (sometimes by a bank!) when an account goes into the red would be reasonable but regular use of unarranged overdrafts, that it appears many complainants make, needs to have a penalty since otherwise there is no encouragement to manage money in a sensible way. There have been cases where banks have been criticised for allowing people to build up debts!
The encouragement by banks and others to move to a cashless society is only going to make things worse, as waving a card over a machine doesn’t feel like spending money and the little bits of paper you get are very easily lost or mislaid.
If you come to me to borrow money and I agree and give it to you that’s OK but taking money from my wallet without my permission is stealing.

What amasses me is the so called annual review i have an overdraft i very rarely have need of oit and dont go over it i have been with nat west over 50 years they know me and my business in the old days it was an interview to renew the facility now it is a phone call and press a keyon their computer £150 please sir possibly not even the word please and of course sky high rates

Parmender Kumar says:
10 February 2017

Them gangster banksters again?

If we are to have an intelligent and balanced debate about ‘punitive and disproportionate charges’ for unarranged overdrafts, as I am sure Which? would support, it would be helpful if the banks’ individual justifications for their charges could also be reported. We have seen their defence of their overdraft avoidance policies, which don’t seem to have been very effective, but I cannot recall seeing information on exactly how and why the actual charges are as they are. Perhaps this was buried somewhere in the documents considered by the Competition and Markets Authority in their review. [N.B. That is the correct title of the CMA and not as given in the Intro.]

I share many of the points made by peterjones in his comment above. It is the scale and manner of the penalty being applied that I object to and I think we are entitled to hear the banks’ side of the argument and consider their justification.

Balance is certainly key, John. We could also look at why perfectly rational and capable people do not look after their financial affairs, do not ask for an arranged overdraft, do not seek help, and ask who should be topping up the incomes of people who spend more than they earn.

It seems to me that to resolve the overdraft issue we need, as you suggest, to have the regulator decide what the basis should be for charges, including a disincentive to use an unarranged withdrawal. To decide whether we should ban unarranged withdrawals totally. And most importantly, to find ways to identify those people who cannot, through lack of ability, manage their financial affairs and their bank account properly and how to provide them with the help and support they clearly need.

e wittig says:
10 February 2017

Big difference between a few pence for a few days once in a while and large amounts on a regular basis – but common sense needs to prevail.

Susanne says:
10 February 2017

I have just wasted one hour to lose my comments on banks, ombudsman and other important stuff…..Thanks!

The cap should depend in part on the extent of the unarranged overdraft, so a sliding scale might be more appropriate.

I think any cap would apply to the interest rate irrespective of the amount of the overdraft; the term would dictate the eventual cost. A cap should also apply to the one-off service charge for an unarranged overdraft; this should not be reiterated for continuous charging periods but presumably would be re-applied if there was further unarranged overdrawing after a break.

The fact is banks know who are the most vulnerable customers and target them with products they do not need. I assist vulnerable people pro bono. One example a lady with physical and mental health difficulties had been paying £15 a month for an overdraft facility of £100. When I queried these charges the bank explained that the £15 included an insurance policy which covered foreign travel, automotive breakdown and smart phone repair.

I said I believed the bank had missold the policy to which they informed me that their sales people were highly trained professionals. So I asked 3 questions.

Did the sales person inquire if the customer had a passport?
Did the sales person inquire if the if the customer had a driving license?
Did the sales person inquire if the customer owned a smartphone?
I recovered 2 years payments in full plus interest, the customer has never been overdrawn soon.

What is deplorable is the banks hold all the data on the customer and would know they have never been abroad, never purchased petrol and how much they paid for their mobile phone. What the banks are doing is criminal.

The solution to unarranged overdrafts is simple, if there is not enough money in the account, refuse the withdrawal or cheque.

11 February 2017

Some people will take advantage of the system which will cost the rest of us money. Perhaps there should be a limit , but who will decide how much? The government?: we have seen what a messes they make!!

What is the point of exorbitant fee’s that are only going to put more pressure on vulnerable customer’s. There will be countless people who live on very fine margins with their bank balance, and through no fault of theirs (a late pay cheque, or some such money not clearing in time) they will be put into a spiralling debt situation they are unable to get out of without getting into further debt.
Might look good for the banks forecasted balance sheet, but like everything with the bank’s they only ever see a spreadsheet that looks good, the actual mechanics and pitfalls are never considered until after the event. Par for the course with the Bank’s .

Ruth Maher says:
11 February 2017

For years I did not realise we could have an arranged overdraft and I was not told by the bank either. Every time we went overdrawn we were sent a letter by Lloyds Bank to let us know we had gone overdrawn by 50p and they charged us £30 for the letter each time they sent one. This just helped us to go more overdrawn and they offered no solution they just kept charging us. We changed banks in the end and our new bank arranged an overdraft for us and we never looked back. Our new bank was Midland which has since been taken over by HSBC. who we still bank with. We were young then and not financially savvy but we have learnt over the years and we made sure none of our children bank with Lloyds. Obviously nothing has changed in the last 30 years and its about time someone sorted out these greedy banks.

I see these charges as a form of penalty attempting to discourage unauthorised borrowing. There is also the issue of the risk that the more responsible customer indirectly subsidises the less responsible customer through other aggregated bank charges. Having said that there is the concern of having proportionately fair charges and not a dishonest source of revenue harvested by banks.

Doreen Stevens says:
14 February 2017

It is so stupid to inflict more hardship on people when they are overdrawn, theyre overdrawn for a reason and shouldnt be penalised to the amount the banks get away with

Heather says:
16 February 2017

I bank with Barclays and have an arranged overdraft. I get charged a daily fee according to the amount I am overdrawn. What I find disgusting is that I get charged for Saturdays and Sundays as well. If you pay money into your bank on a Saturday it updates on the Monday. As for a Sunday Barclays are not open so I have no opportunity to pay money in to clear the overdraft. How can they justify charging an overdraft fee on days when I have no opportunity to clear the overdrawn balance. Just another way of making money out of customers who are obviously struggling already. On top of which. I have in the past needed an increase in my overdraft for a short period of time. Barclays take the details and push the button. If it says no that is the end of the conversation. No questions about the reason behind why its no. It says no we cannot help you. If they had actually asked I would have explained why there is an issue on our credit report and backed it up with evidence. It forced me into borrowing from a more expensive lender. The trust between customers and the banking industry has gone and the care the staff have for their customers is no longer there. They are just robots being operated by their seniors for the want of more profit. It is plain greed at the expense of the hard working people of society who sometimes need a helping hand.