Unarranged overdraft fees that cost more than a payday loan

Beryl, I haven’t yet looked at this link but found years ago that having a credit card changed my attitude to spending somewhat. I am cautious by nature but credit of any kind that makes a purchase easier does tempt us into making a more spur-of-the-moment or more expensive purchase, whereas parting with cash from my wallet made me think harder – do I really need to buy this? And, of course, the cash was real money I had saved up. A cheque book had a similar effect. Now I use a credit card mainly for free credit; I pay it off in full every month. The upside of credit cards is convenience, particularly with the internet. But they require self control, and whilst we can blame the banks for introducing them it is we who use them.

We use debt all the time. The classic is the mortgage, which often gets overlooked; who could possibly aspire to a home of their own without incurring debt? But if we miss enough payments we lose our home – we cannot normally blame the lender when that happens.

I cannot understand why, when people have the opportunity to avoid the high charges, they don’t arrange an overdraft facility. particularly if they’ve once had their fingers burnt. That is surely the place to start. If they are not a good credit risk then the bank should simply not allow them to overdraw. Is that not a simple solution?

I enjoyed reading several articles on psychology today.com, which are easy to understand and relate to.

I am reminded of a friend who died ten years ago. I got to know him because of a shared hobby interest. He was an avid collector and had a bigger collection of OS maps than most bookshops. That made some sense because he did a lot of travelling and used maps regularly, but somewhat eccentrically he also had a large CD collection long before he had a CD player, largely thanks to Britannia Music and other mail order companies that existed at the time. He also had many box sets of video tapes but could not afford to buy a player that worked reliably. At least he could enjoy his growing book collection, and he was an avid reader. He spent a fortune on car repairs and would eventually buy another old car. He would never fill up the tank of his car and frequently ran out of petrol. In most other respects he was normal person and helpful to me and his many other friends. He and his wife had savings but he was paying substantial interest to his credit card companies or bank every month. He knew that if he stopped spending money on unnecessary purchases for a few months he could clear his debts and have more money to spend. It never happened.

Wavechange, I was very interested to read about your friend who was obviously fulfilling a deep seated need of his own by gaining material pleasure from his collections. He was, I would surmise, a spender who was extremely fortunate to have a wife who was a saver. I was once married to an extrovert spender whose hobby was collecting credit cards! When one card had reached its spending limit, another would be used to enable him to continue his spending and his very expensive lifestyle , and then another ad infinitum………

I recall that he did pay the household bills because I remember him saying that he waited until the red ones arrived. His wife worked for a local hospice and I don’t know if she had an income. It looked like continuous but controlled debt. He gained pleasure from his maps and books but much of the other stuff cluttered up their home and garage. When I first knew him, everything was meticulously organised, especially his extensive photo collection, but that went downhill as his health deteriorated. I know materialistic people with expensive cars and boats but he was not one of them. He had a decent house in a nice area, and I assume that he had just become accustomed to living in debt. Improvements such as replacement windows were done a couple at a time – hardly a good way of getting value for money.

I vaguely know a couple of other people who have struggled financially. One couple was forced to sell their house when they could not make ends meet and they now live in rental property on benefits. I know of someone else who had little income and was living in rental property. She told me that she had become bankrupt and looked forward to having a fresh start. Having heard other tales of people I don’t know, I’m convinced that debt problems are many and varied. Whether they are genuine hard luck problems or simply lazy people who don’t manage their money, I don’t think they deserve high interest charges so that the rest of us can enjoy free banking. Many of us are accustomed to paying nothing for banking services even if we keep a low credit balance. I wonder if anyone would like to justify this.

I don’t think it is high interest charges – my bank charges the same rate whether the overdraft is arranged or not. It is the fixed charges attached to unarranged overdrafts that seem to cause the most criticism, particularly when the overdraft is small.

My plea remains – encourage all who qualify to make the sensible move and arrange an overdraft facility if at any time it is possible you will overdraw. Then the other charges are irrelevant to you.

Just in case it is a factor, perhaps we should campaign to put an end to high interest charges. If the banks can provide evidence that their charges are reasonable I will reconsider but for the time being I will assume that they are being greedy. If we could do a Freedom of Information request we could establish whether the banks are being greedy or whether this is a popular myth. I have no reason to criticise my bank over how it handles my current account.

If you mean % interest these are clearly shown in the banks I have looked at and are somewhere around 17-19%, about the same as credit cards are for many. For short term emergency borrowing do you see these as unreasonable? If you want longer-term borrowing and more money then it would be sensible to take out a loan. My bank currently, on the web, shows an interest rate APR 4.6%.

We need perhaps to devote more effort to ensuring people have information upon which to make financial decisions, but looking at you bank’s website, and talking to them, is a good way to start.

I appreciate this but what I don’t know is what profit the banks are making. The fact that we have free banking suggests that those in the red are being exploited by the banks. I don’t know any other commercial organisation that would provide many of their customers with a range of free services. Do you?

To be viable, all companies must obviously make a profit, but I don’t approve of exploitation of some customers for the benefit of others. Would it not be fairer if you and I paid for banking services? Charities and businesses do. I don’t expect my suggestion would be popular, but at least it is fair.

I am not sure of the extent of your friends hoarding
practices Wavechange but excessive hoarding is an offshoot of OCD. You can read more about it @. psychologytoday.com
The Psychology Behind Hoarding.

It is possible to take out Mortgage Payment Protection (MPPI) Insurance in the event of accidents, illness, redundancy etc. with protection for up to one year to tide you over. My son-in-law took advantage of this for about 3 months until he found another job. With today’s uncertain job prospects this seems a wise thing to do.
To have to relinquish your home through debt must be very painful.

It must be very difficult for couples when one partner has
a spending problem and constantly goes overdrawn. I still maintain keeping a small contingency is the best answer as opposed to going over into the red and being encumbered with interest whether it be either at a high or low rate Malcolm. A little amount put by every month can soon add up; a small price to pay for peace of mind. I am very relieved that I don’t have that worry anymore.

I wouldn’t mind paying for banking. It is a valuable service and with my banks it is a good service.

Credit cards are free, paid for by those who borrow or default and the retailers. I get up to 2 months free credit.

I believe some electric car charging points are free.

I get 2 hours free parking paid for by those who stay longer or pay penalties.

Nothing is free really, though, is it. Your deposit in a current account is invested by the bank to make money. It just may not reflect the real cost – like you pay the same council tax even if you don’t use all their facilities like schools and sports centres.

Hoarding can be caused by a feeling of a lack of security in childhood and replacing that with objects round the house to obtain a feeling of “ownership ” but you have to differentiate between that and say a woman having a very large collection of cuddly toys which is part of the nurturing process or even a want to be cuddled or loved (in the finest sense ) . I have been in many females bedrooms (repairing bedroom phones ) and some had wall to wall furry “pets ” staring back at me . Men have tool-sheds full of tools I have a large collection of electronic equipment ,old valve radios manuals, old electrical antiques , bakelite phones bric a brac- etchings , watercolours etc etc . My wife has a room full of cuddly toys and even going to car-boot sales there is always a female happily clutching a stuffed tiger or leopard toy leaving the site. I hoard a lot to repair -ie-spares but if push came to shove I could live in a very modern style house in minimalist fashion as long as I had my hi-fi gear and books .

I would be prepared to pay too, providing that charges had some relation to costs of servicing a current account and used to decrease interest rates, and not as an excuse to generate further profits. I had expected charges to be introduced when interest rates fell to current levels, though the banks would not have been popular if they had. At least with services funded by council tax, everyone has the opportunity of using services.

I don’t understand why interest rates are so high for credit cards given that the retailers pay substantial charges for the service – which is of course passed on in higher costs of products and services for consumers, even those who don’t have a credit card.

Although I frequently mention fairness, I’m not a very benevolent person. I f just feel that the gap between rich and poor has become too wide, yet have little time for those who could pull their weight but choose to exploit the benefits system.

I see the main problem not to be the gap (although I envy those highly paid people in all walks of life, whether business, charities, public life, entertainers, sports, but this is and always has been the case) but the level of the “poor” by which I mean their ability to lead a reasonable existence. Absolute poverty is far less prevalent than it used to be. But can you stop James Dyson selling highly price appliances and becoming a billionaire, golfers and footballers making millions, people being fortunate with their investments or winning the lottery………… Where I have more of a problem is the concept that in public life and business we must pay more and more to attract the right people – who often turn out not to be right.

I’m a bit of a hoarder too but it doesn’t cost me any money

I keep telling you Duncan there’s a book in there……………..get writing!

I know that Beryl I have a “million ” stories in my head its going to the trouble of putting it into print , real life but name changes /place changes ,some sad,some funny as I can be very gregarious when I want to be and spent decades talking to people entering their homes/businesses , authorities , churches,chapels , priests, ministers synagogues, kosher slaughter houses , every type of restaurant under the sun . The poor,the rich, Lord’s/Ladies , drug dealers , all types of criminals , jails ,old folks homes , mortuaries, operating theaters, fish markets.fruit markets , police stations, Chinese gambling dens , brothels, massage parlours , banks , fire stations ,oil terminals , secret installations etc . Spoke to everybody but due to the job couldnt report anybody no matter how much they were braking the law . One place was beautiful inside although it was a tough housing estate , door bell rang constantly for drugs , was prepositioned many times by single women ,married women , even by several couples for a “threesome ” when fixing phone in brothel was asked if I wanted a “freebee” . What I found is that nobody is perfect in life even religious leaders so I never expect perfection in human beings I felt very sorry for some women who were lonely and wanted company , I should have been a type of social worker but my cousin (now dead ) said I should be like him a college lecturer .

I don’t get why credit cards are anything but scary. Spend now in the hope of having money later to pay it off? No thanks. But then shopping is not therapy for me.

I do have a credit card though. Some years ago, I had a £1000 bill to pay in January and I knew I would receive money in June. So I got a card will 0% on purchases for six months. I paid the bill out of my salary to avoid the credit card surcharge and paid for all my regular purchases for a month or two on on the credit card. When I got my money in June, I paid the card off and I haven’t used it for years. Still has to be the best loan l ever took out.

I did wonder what I was letting myself in for when I got my first credit card, but as long as you know that you are going to be able to pay the credit card bill, it should not be scary. If you continue to pay off your bills on time then you have the benefit of an interest-free period.

My biggest financial concerns have been the risk of loss of income if I was made redundant or was unable to work. Many are on contracts or frequently at risk of redundancy. That does not help if you have a mortgage, a car loan or a family to support.

Perhaps it would help if the credit card companies set low credit limits and only raised them for those who are managing their account well. But like the banks, it boosts their profits if customers are in debt.

Duncan, the key is to psychoanalyse yourself and your own spending habits! You don’t necessarily have to avoid contact with people to be eccentric but you are more likely to be extrovert to develop a herd instinct, since extroverts are by their very nature under stimulated they
are more likely to go out and seek other people’s company to provide extra stimulus.

One of the most common phrases people use to justify their spending is “well it must be OK because everybody does it.” A simple but classic example of the herd instinct Wavechange. All attempts to convince them that “everybody doesn’t do it” will most probably invoke a reaction such as you are the odd one out for not doing it!

A little eccentricity doesn’t go amiss occasionally as it can sometimes add a little spice to people’s lives, especially in the present economic uncertainty, but I am in danger of veering off topic so will bow out now
🙂

PS. The BoE have just announced interest rates to remain at 0.5%.

“Everybody does it” is a good enough reason to question whether to join in. Popularity can push up prices (attending football matches and Wimbledon, or pop music concerts) or competition can bring down prices (garden barbecue equipment). If you don’t join in when you are younger you can feel left out, but once you have found others that share your interests then you will be well accepted.

D’accord – an attribute that comes about with maturity Wavechange.

Congratulations Sue glad to hear your efforts paid off. Proof that Banks do have human beings working for them after all.

If you believe that charges have been applied unfairly, incorrectly or if they were not in your contract then I’d first contact the bank with your complaint. Some advice here:
https://www.moneyadviceservice.org.uk/en/articles/how-to-reclaim-unfair-bank-charges

May be a good idea to move to another bank?

I think we saw this coming when Santander launched their 123 account. It attracted a huge number of new customers who might now leave in droves. If these changes affect them, they would be silly to remain attached to Santander when other options are available.

Which? seem to think it is quite acceptable for people to expect to take more money from their bank than they have, without asking for the bank’s agreement. The simple answers are to keep track of your finances – your responsibility – and if you temporarily want more money than you possess then ask for your bank’s agreement. If they don’t agree they might have very good reasons – such as you are not a good risk. This was a nonsense headline and sends the wrong message, particularly to those who do act responsibly (i.e. most of us).

GL Williams: When you say “In normal circumstances ‘borrowing’ without authority is known as theft.” you’re forgetting that no theft is involved. The bank willingly and openly offers their client that money. So it clearly isn’t theft. Now if may be imprudent behaviour and I suppose if you’re not holding down three jobs, attempting to pay rent, insurance and rates and feed yourself then the world possibly seems pretty good. But for those in the situation where they’re working as hard as they can to make a living, but who are being paid in irregular ways and times, then charging the same for an overdraft that they willingly advance you as a payday loans company comes closer to the definition of theft for me.

That seems quite reasonable to me Dave. I can understand your concern at the ‘usage fee’ in relation to your average overdrawing but it costs the bank a certain amount to manage a customer’s overdraft whatever the amount involved. The arranged overdraft charge of £2 a month is the price you pay for that service allowing you to borrow at any time without further approval up to a total of £1,800. You did not borrow much over the year so your interest charge was very low. Your information shows just how economical it is to have an arranged overdrawing facility instead of running into the red without approval.

Your high average credit level has avoided the need for you to overdraw more perhaps but because current accounts generally pay no interest it does not directly offset the cost of your borrowing.