/ Money

Unarranged overdraft fees that cost more than a payday loan

Overdrawn

When people face a shortfall in their finances, they probably turn to their bank first. But it might surprise you to know we’ve found unarranged overdrafts that cost more than a payday loan.

Have you ever been in the situation where this month’s budget is looking fairly rosy just up to the moment when the car fails its MOT and you’re hit with a huge unexpected bill for repairs. In this situation, dipping into an unarranged overdraft can be costlier than you might expect.

Not everyone has a savings account buffer to help them deal with the unexpected costs, and these people face much higher charges from some high-street banks for using an unarranged overdraft than they would if they took out a payday loan.

When we took a look at the cost of borrowing £100 for 28 days what we found was that charges from some high street banks were as high as £90. This is up to four times higher than the maximum allowed charges of £22.40 on a payday loan.

Spiralling costs

But that’s only half the story. You’ve been sharing your experiences with surprise charges here on Which? Conversation.

Overdraft charges can add up quickly, as Peter Lloyd knows all too well:

‘I went over the overdraft limit when the bank put on its monthly charge, it cost me about £100 in total. They finally sent me a letter telling me of the penalties after the full seven days’ charges had been added; if they can let you know then, why not earlier? If they had notified me on the internet, I could have avoided all the charges. What is internet banking for?’

Matthew shared his feelings of hopelessness:

‘I’ve been stuck in an overdraft trap for a long time now. The charges mean I can never get out of it.’

Unreasonable and unexpected

Charges for an overdraft can seem punitive and unfair, as experienced by J Kelly:

‘The first time I went overdrawn, I wasn’t aware I had one. I was told the new card worked the same as the old card, but that this one was applicable for online banking. So I was quite surprised when I first unknowingly went overdrawn by about 11p, then got a statement a few days later for a £15 charge at the time. It hardly seems fair for such a petty amount.’

And as Nick Fletcher explains, there are vulnerable people being exploited by these charges too:

‘My son in his first years after university whilst still jobless and even today can match several dozen times that story of £90 fee for £2 overdrawn. In the world of banking it is often the poorest who end up subsidising the well-off. This reflects the totally distorted view of life and living that most banks have entrenched within their mean and nasty financial policies and objectives.’

Calling for fairer charges

We’re calling for a crackdown on unarranged overdraft charges as we find that consumers who need money in an emergency face higher charges for using an unarranged overdraft than they would if they took out a payday loan. We think unarranged overdraft charges should be set at the same level as arranged overdraft charges.

The Financial Conduct Authority has shown it’s prepared to take tough action to stamp out unscrupulous practices in the payday loans market, and it must now act to tackle punitive unarranged overdraft charges.

Have you been surprised by an unexpected charge for an unarranged overdraft?

Do you know how much your overdraft fees are?

No, I have no idea what the cost would be (45%, 2,553 Votes)

Yes, I do know how much I'd be charged (36%, 2,048 Votes)

I'm not sure (20%, 1,131 Votes)

Total Voters: 5,732

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Comments
K h li says:
9 July 2016

I was been charged £95 for a month l had a overdraft for £50 I was £48 overdraw and they charged me £3 bank charged that made me £1 over the limted so they charged me unaouthy over draw they charged £6 per a day and £30 bank charged in one month I got to the ousmanbus to complain and they will look into the matter I waiting to hear from them

I am appalled by the high interest rates charged on overdrafts, credit cards, etc. and want to know if they are justified. Obviously some customers debts will have to be written off by the banks but I assume lending money at high rates is lucrative. There is a parallel Conversation about a collective action against MasterCard for making too much money out of its customers.

I have not had an overdraft except once when the bank made a mistake over mortgage payments and that was quickly resolved. I dislike the way the bank shows my account shows ‘balance’ and ‘available’ (the latter figure including the arranged overdraft) because that seems like an invitation to use money that does not belong to me. I have not a clue what the current interest rates are for overdrafts but if I got into financial difficulties I would make it my business to find out and look for cheaper ways of borrowing money.

Not only may my bank want me to be in debt but I have just opened a letter from my credit card company saying they will be increasing my credit limit, which I have not requested. And PayPal have sent me an email reminding me that I have a small amount of credit in my account. It seems pretty irresponsible to encourage people to spend.

Simply having a credit card encourages spending for many, I suspect. We are all responsible for our own actions and need to face that. We cannot rely on others to look after us.

Adverts persuade us to buy stuff we may not really need, shops display goods in a way that tempts us. Birthdays, anniversaries, Christmas, Easter, Fathers / Mothers day, all put spending in front of us – presents, food, eating out…… “Brands” persuade us to buy their overpriced stuff because we like or recognise the name – Nike, Coke, Dyson……………..It is the way of the world and it will not change. We just have to exercise self control – or, if we do not want to then must be prepared to accept the consequences.

What I do not want to do is to be forced into changing my responsible methods of dealing with my finances to support someone who is not prepared to be responsible.

I am not sure how tackling excessive overdraft charges is going to affect your finances or mine, Malcolm, but maybe I have missed something. However, it could make a big difference to those who are struggling to cope with rising prices, unemployment, illness, family crises and the cost of having a family. When faced with high interest charges, the situation can go from bad to worse. If the banks are – on average – making substantial profits from providing overdrafts then I don’t think it’s fair.

For the record, I am strongly in favour of saving before spending and do not approve of student loans, which acclimatise many young people to living in debt. It would be better if school leavers worked for a year or so to accumulate savings before going to university and fees were payed for them, as in Scotland. Of course we could not afford to send so many to university, so the places should go to those that show the motivation and ability to gain a funded place. By working for a year, school leavers gain life skills and have the opportunity to think whether higher education is the best option for them.

“I am not sure how tackling excessive overdraft charges is going to affect your finances or mine, Malcolm”. As I mention below if I use £100 of my overdraft facility for a month it will cost me around £1.60. That is not “excessive”. If the bank will not give me a facility they may well have good reason. It is not their job to provide financial support for those who spend more than they earn or who do not try to understand and control their finances.

All is not “sweetness and light” in Scotland as far as free university tuition wavechange . Much as I approve of it, it is a fact that only about 22% of the student population are actually Scots , this is especially true of those from poor backgrounds . It seems the Scottish universities get most of their money from foreign students and they are not happy at the pressure from Holyrood to allow more poor Scots in. This is a recent topic in several Scottish newspapers as for some reason Scottish Universities are “doing well ” probably due to St Andrews and Prince William .

“my account shows ‘balance’ and ‘available’ (the latter figure including the arranged overdraft)”. This is not the way my bank shows my balance so presumably it is not general.

Duncan – My point about Scottish higher education is that fees are paid so that students are not acclimatised to living in debt. I agree that there are other problems.

Malcolm – I arranged an overdraft of £200 many years ago and remained the same for many years, but now it’s £1700. I have not agreed to that and cannot recall being informed about the change. I think it would be better for (all) banks to encourage customers to build up a reserve fund for emergency use, much in the same way that cars used to have a reserve tank and motorcycles still do.

We should all have an emergency fund – I agree. My car does not have a reserve as such but a warning comes on when I am low and sounds each time I start the car. Unfortunately many “run on reserve” just as if it was their fuel – which of course it is. Your reserve is, however, not “your money” but presumably your bank sees you as a good customer, a good risk, and simply allows an oversight, or an intended short term “loan” to be available if you should need it at low cost.

We should not penalise those who operate their lives responsibly simply to pander to those who do not. The latter need a different kind of assistance and we should work to make this available rather than subsidise their actions. If they ignore their reserve and run out of fuel……..

I expect that your cars have never run out of petrol, Malcolm. Mine have not, though it was near when I discovered that many garages in Scotland close on Sundays.

Thankfully we can agree on something and perhaps the banks could encourage people to have a reserve fund, though their directors might not approve.

By the way, are you happy about the current charges for UNARRANGED overdrafts, Malcolm. The capitals not just to emphasise what we are discussing but because my browser keeps changing it to unassigned. 🙁

I did run out of petrol once, on holiday when I was driving my parents in Norfolk in an old Ford Anglia. The experience was not great, although I did find a garage. But I have not done it since.

I have slipped into an unarranged overdraft on a little used account – a lapse of concentration forgot that a regular payment came out and the small balance went negative. The bank’s statement showing this came through two weeks after the event and I’d gone over the free £15 limit by £3, but the daily charges of 75p meant a charge of £9. I was annoyed – mainly with myself for forgetting to track the account, something I normally do religiously (on Sundays as it happens). I was prepared to cough up but did write to the bank to confess it was my error but didn’t the penalty seem a little excessive – wouldn’t a % interest be more appropriate? I was not complaining but did receive a phone call from a pleasant lady to say they understood and were cancelling the charge and setting up a text alert for me – just in case. I think for a rare slip this will be the bank’s reaction, but I don’t expect regular “slips” to be met with the same outcome.

The CMA have made some useful suggestions as I mentioned earlier – text alerts if you are in overdraft, a grace period to sort it out, a cap on monthly charges (scope here to negotiate fairness, I hope). The suggestion the all overdrafts should be treated the same, whether arranged or unarranged, seems daft. That will simply discourage banks from taking on particular customers who might not be so creditworthy, or closing existing accounts.

Another quote from that BBC News website article I keep referring to :

“A spokesperson for the British Bankers Association said: ‘Across the board overdraft charges have plummeted since 2008, with consumers saving up to an estimated £928 million over the past five years; one bank recently reported its customers are saving £100 million per year as a result of text alerts‘.”

I don’t remember seeing this mentioned by Which? Must have missed it.

I don’t think it was mentioned by Which? Malcolm. It was additional reportage by the BBC to put Which?’s protestations in context.

John, sorry – I was being sarcastic. But on many occasions Which? omit relevant information that weakens their case, in my view. Like the ASA and adverts I expect Which? to offer fair, balanced and objective material, and there are a number of occasions where this has been patently lacking and where populist headlines seem to matter more than confusing people with the facts. I just wish we had straightforward transparent organisations to help us.

malcolm I would rather “confuse ” people with facts 7 days a week than than put forward dumbed down information . At least I am not trying to patronise people and if I dont get it 100 % right at least I try. Why do organisations and BB come to the conclusion that the public is “dumb ” I always thought England still had a majority of people who can think “out of the box ” we are not yet drones , you do realise we are all classified as to our “proper place ” in the intelligence ratings by the government . I have done enough Gallup Polls and surveys when younger to read how they were patronisingly applied to “Groups ” . if it was the colour of your skin it would be racist but occupations and government scales of intelligence go hand in hand , we still have class distinction in this country.

I only ever buy the Saturday DT, An interesting headline – “Facts are the first casualty in the new war on truth”. One MP saying “this country has had enough of experts”. “Facts don’t work” was used to support the use of a particular mantra. Facts can, indeed, be inconvenient when they challenge a dearly-held view any of us might have.

Never a truer word malcolm and the MP and others are just repeating what is said on the other side of the Atlantic– the people dont need the truth only what fits in with our political and economic point of view and then —– a big mushroom cloud appears outside your window.

Kay says:
11 July 2016

I bank with Santander and this is indeed how my account details are displayed: Balance = exactly what I have, Available Balance = what I have + prearranged OD amount (which I’ve never used, by the way).

Nationwide do not do this; available balance is real money, no overdraft facility included. My experience with them over many years has been good, and many people in previous conversations have agreed. So, if you are unhappy, vote with your feet?

trish hackett says:
9 July 2016

i was told there is a way u can recover this over charge but cant rem it any help plz

We are all responsible for managing our personal finances and how we spend our money. So we should, other than in exceptional circumstances, know when we might overdraw our account. If that is likely to happen from time to time, or simply as a safety net, we should ask our bank for an overdraft facility. If they refuse it may be because we are a bad risk, and they may not get repaid. The bank is putting their money at risk. Therefore those who abuse their contract with the bank should be charged more than those who act responsibly. “We think unarranged overdraft charges should be set at the same level as arranged overdraft charges.” What logic supports this ? It simply condones irresponsibility. If you keep track of your finances – a simple cash book is all most need – and know therefore when you might go overdrawn or exceed your overdraft then speak to your bank to agree an arrangement. If it is for a large amount then think of arranging a loan or using a credit card (if you are credit worthy).
My two banks now charge a daily fee if I go overdrawn without agreement, but only if it exceeds £15. They will then charge 75p a day up to £1000 overdrawn, £3 for over £3000. It is not financially worthwhile taking long term unauthorised overdrafts but if you have a short term slip-up these do not seem punitive. Except when you exceed the limit by very little – a £17 overdraft will still cost 75p a day which is, I believe, unfair. I would suggest we campaign for both a daily fee and an interest rate to be stated, and the one giving the smaller fee be applied.
They also offer a (free) text alert service to warn if I am going into overdraft. You simply need to allow them to have your mobile number, then you can take immediate action.
I would much prefer Which? to be campaigning for the education of people to manage their finances correctly. The banks could (and some do) offer means to help people budget their finances, but if someone spends more than they earn regularly there is little that can be done other than a change of habit.

Philip says:
11 July 2016

I arranged an overdraft facility with my bank for the occasional times when I overspend. However since I did not overspend for two years, my bank wrote to say that they were cancelling the facility, since I had not used it. They refused to re-instate the facility, though it had never been abused. This seems a catch 22 situation. So the next time I am overdrawn by a few pounds or pence I will get a whooping charge. Seems like sharp practice to me.

This perverse practice of the Banks hits the struggling and low earning more than anyone. Those with good annual salaries and comfortable pensions are quite possibly unaware of the plight in which many hard-working youngsters find themselves. And this plight is exacerbated by the Banks’ attitudes.

Why does it hit the youngster so hard? Well, many youngsters working in towns which have tourism as the major industry suffer a double whammy: they are low paid, of course, but they’re paid hourly and depend on shifts which, in the hotel trade, can vary on a weekly basis. Because the basic rate is so poor they also have to work in more than one job at a time just to make ends meet. So the average 23 year old in the service industry works in several jobs, never knows exactly what they will be paid, is almost always paid at different times and faces a system where all the creditors demand their money on a regular basis.

As if this wasn’t enough HMRC then enter the fray and attempt to guess what tax our 23 year-old ought to be paying. Naturally and inevitably, they get this wrong, usually charging too much. You might argue they’ll refund the excess – which of course they do – about 14 months later – but meanwhile the youngster has to meet all the scheduled demands on time, despite never knowing how much they’ll have, juggle the payment dates and work every hour available.

This is the time when the banks could really help, by being sympathetic towards a youngster and giving them some breathing space to sort themselves out. And in the past, that might well have happened, building a close relationship between the bank and a future decent earner. But not now. Because the low earner only qualifies for the basic account they slap unbelievably extortionate charges on them, thus pushing the customer even deeper into the red, causing him to incur yet more charges.

So to argue “we should, other than in exceptional circumstances, know when we might overdraw our account.” misses the point: the low-paid cannot know when the overdraw might occur, they cannot get an authorised overdraft facility because they’re low paid and not in receipt of a monthly salary and to punish them – because that’s exactly what punitive overdraft charges constitute – simply pushes them deeper into a spiral of debt.

Ian, I sympathise with the plight of the people you describe. I was in that boat once but manged to get by without debt I couldn’t repay. But it was a basic existence until I found my feet. The question is whether the people you describe permanently spend more than they earn; if so that is unsustainable. If they can show that overall their earning balances their expenditure then I expect the bank would be understanding. but it is not the commercial banks’ job to effectively provide social security benefits. That is for the state. We all have to find ways to live within our means.

Banks have the option of refusing to make a payment that would take someone overdrawn; that could embarrass the customer or give them a real problem – a failed insurance direct debit might leave them uninsured for example. They also, as a final sanction, can close an account that is, in their eyes, being abused.

I am for fair, realistic charges but do not believe that those who don’t ask for, or are denied, overdrafts should pay the same as those who do. If a client fails to repay money they have “borrowed” from the bank the rest of us end up paying for it.

I now what you mean when you say “I was in that boat once but manged to get by without debt I couldn’t repay” but things are somewhat different, now, and especially since 2008, when the banks’ rampant irresponsibility and sometimes sheer criminality led to the economic disaster, to which their response was to put the blame on their customers. Youngsters now have a far harder time than either I or my wife did when we were starting out, and the delights of zero hour contracts, variable hours and total lack of job security simply add to the problems.

I did part time jobs when I was at University but they afforded me spare cash, really, and I had no huge outgoings. Once I became a home owner and we started to have children things were harder, but nowhere near as nasty as they are now for the youngsters.

The major issue isn’t lack of organisation or budgetary control: it’s simply that because their financial affairs are so unpredictable in terms of when they get paid and how much any sort of sensible budgeting verges on the impossible. This is the time when banks ought to be supportive; not by giving away cash – obviously – but by leavening the levels at which they impose charges. At the moment the banks are making the greatest profit out of those with the greatest need. I happen to think that’s wrong – on just about every level.

Clarke says:
9 July 2016

My son went £34 overdrawn in March while at Uni. He realised the same day & corrected the mistake. However, the account was not credited until the next day & he was charged £16 by TSB. He applied for a student account with free overdraft but this was never provided. TSB refuse to refund the charge.

In an article on the BBC News website entitled “Overdrafts more expensive than payday loans, says Which?” there is an interesting illustration of the cost of borrowing £100 for 28 days from six banks compared with the capped cost of a Pay Day loan of the same amount and period. The Pay Day loan costs £22.40 while banks charge between £30 and £90. The article goes on to say “Banks advise their customers to use a planned overdraft facility wherever possible. HSBC, for example, said borrowing £100 for 28 days through this method would only cost £1.40.“. It’s got to be worth going into the bank and asking, surely? I should be interested to know what are the impediments or inhibitions since if we could address them this issue could be reduced to less sensational proportions.

Using an inappropriate example to make a case seems increasingly to be one of Which?’s tabloid-style misleading tactics these days. If a case has merit there is no need to try to overhype it. If it has not then be open and balanced in presenting the facts.

I have an overdraft facility with my bank which. if used, would charge 18.9% EAR – around £1.60 for a month if I used £100 . That can hardly be described as extortionate. If you qualify then arrange it; you may never use it. But banks are not there to fund people whose expenditure exceeds their income. It is discourteous at the very least not to ask your bank for a facility if you might need it and providing the charges are displayed in your contract you have only yourself to answer to if you ignore them. If you cannot understand your financial affairs and keep track of them then set about learning; it will pay off, literally.

I don’t believe Which? – in this instance, anyway – has used an unusual example. I know I keep saying this but for the younger earner holding down two or three jobs this is not an uncommon state of affairs. This is simply because younger people are automatically deemed to be worse risks, and are thus milked disproportionately.

We also need to be clear about authorised and unauthorised overdrafts. Using the analogy of the shop and the till cash, it is theft to remove the money without any intention of returning it (it isn’t, incidentally, if it can be established you had no intention of depriving the owner of that cash permanently). But the analogy is flawed.

Banks had, for many years, made it extremely easy to run overdrafts and to borrow money. That all came to a grinding halt in 2008 when – and let’s not forget this – the banks engineered, through a mixture of incompetence, greed and criminality, the 2008 worldwide financial crisis. When the recovery slowly started to take place, the banks reassessed their business strategies and prioritised raising huge amounts of cash for their shareholders. To do this they made life wonderful for those with a fair bit of liquid capital, offering special accounts, ultra-low loan interest rates and all manner of other goodies. For those just starting out in their careers and lives the banks decided to create the most hostile environment possible. This is a fact.

They made it extremely difficult to get an authorised overdraft, removed managerial discretion at a stroke, and feather-bedded their wealthier clients at the expense of the younger earner. What was the younger person supposed to do? Don’t forget all the utility companies, all the letting agents, insurance companies and just about every other service connected to survival in the post-2008 world requires you to hold a bank account. So the younger earner was caught in a classic Catch-22: they couldn’t get an authorised overdraft because they didn’t have a regular salaried position, but they had to have a bank account simply to exist.

Because the banks had always made it easy and cheap to borrow, youngsters had been lured into accounts promising the Earth but suddenly the rules changed. The banks had them where they wanted them and, sadly, that’s not changed.

So, unpopular though it may be to blame the banks it is time they realised that extortion from the less well off is simply unethical. Aside from the moral aspect of their behaviour it is at their collective feet that the blame for the 2008 crisis lies.

One final point: returning to the shop analogy there comes a point where the till is empty. If the banks want to continue with this licensed banditry perhaps they should be forced to simply stop issuing money when the cupboard is bare. Exceed the limit and no more cash is available.

Joaniesman says:
9 July 2016

An unauthorised overdraft is taking someone else’s money without permission and the last time I looked that is theft which is a criminal offence. So I am far from comfortable with any campaign to reduce fees in such cases. All that is needed is to contact the bank and agree an overdraft limit. Then, and only then, would I be happy to be associated with a campaign for reasonable fees.

Someone earlier said it is not theft if you plan to pay it back. However if you work in a shop and take money from the till that is theft even if you plan to pay it back. The right thing to do would be to ask the shop owner for permission and let them decide whether to lend you the money. Is that much different from an authorised and unauthorised overdraft?

Just reading the DT and see the article where Which? “report” that borrowing £100 from High St banks can cost 4 times as much as a payday loan.

Well, this is hardly news, and not true if you take out a loan or use an arranged overdraft. It is pretty pathetic for what should be a fair-minded organisation to use such tabloid-style headlines to attack banks. As the banks point out in the article, “the vast majority of customers who use their overdraft stay within their planned limit in an average month.

I don’t object to Which? pointing out the high costs that may be incurred by taking an overdraft that does not have the bank’s agreement. But it should also offer a fair, balanced objective report on how to better deal with your finances – including arranging an overdraft facility if you might need one. that will have very reasonable charges.

Does Which? need publicity this badly?

I think Which? have rather mangled this topic.

A pay day loan is an agreed arrangement , an unauthorised overdraft is not agreed . The clue is in the name.

Which£ have to their eternal shame failed to publish that if it is authorised overdraft is really cheap. I have to say without a doubt the shoddiest article to grace Conversations in recent time.

In support of this article[?] it has quoted various extracts from postings apparently illustrating the iniquities of taking money that is not yours and getting penalised financially.

I am no great lover of the way Banks operate but this is a very poor start to solving the problem of people overspending or being unable to budget . The moral of the story appears to be take a pay-day loan if you have not or cannot arrange an authorised overdraft.

I believe on Conversations this type of subject has been flogged to death previously and I really cannot be bothered to continue re-posting my guidance after decades of sorting out hundreds of bank customers, Nutshell is – your money your responsibility to manage it.

As for hard-luck cases does no one have any family and friends anymore?

And once again I point out that many younger earners cannot get authorised overdrafts because they’re holding down three jobs, being paid erratically and hourly, rarely if ever working the same shifts, being penalised by HMRC and yet have to hold bank accounts in order to live. These are not ‘hard luck cases’; they’re happening all the time to many, many people.

I do not see it as the banks’ job to automatically give risky financial support to people. It is up to those people to find appropriate ways to deal with their financial affairs. Life is hard and I struggled with erratic income when I was young and no family support as they also struggled. But I got through. One thing I learned was to live within my means and only to buy what I could afford. For those genuinely needing financial support we have a tax-payer funded benefits system.

The banks might have a lot to answer for (but so do we with over-borrowing and driving up a crazy housing market) but attacking them on the way they deal with unauthorised overdrafts is not, in my view, the way for Which? to help people with their finances. Which? needs to offer constructive help to these people if it is to do anything. As none of these people, however, are likely to be Which? members then the CAB might be the best place for advice.

I would urge more banks to see customers having difficulties face to face with a means to educate them in understanding their financial affairs, learning how to budget and how best to deal with their money. Mine does a very good on-line version of this with a budget planner.

The advantage that I may have is that I have actually discussed peoples accounts, debt, and budgeting for a living over many years so I actually have more than a simple theoretical knowledge of the matter.

Banks do suck now because they pretty much have dispensed with humans for taking decisions. Computers are inexpert systems as they are currently constructed BUT that does not mean that customers should abdicate responsibilty and blame the Banks for everything.

I did ask whether people had friends and relatives to which no one has chosen to reply. One of the basic questions in lending is why people with friends and families and the capacity to save seem to fail. And why nobody they know will lend to them.

And the answer is generally because they are feckless, spendthrift, have no self control when spending, and most importantly never pay anyone back. I say generally because there are genuine hard-luck cases and incidents where people would warrant help. As a human I made those calls and I pursued to get the money back if the mickey was being taken.

But the number of people out-of-control with finance always exceeds those with problems. This is aggravated by the modern payment systems- nobody has ever overspent cash in the pocket. I sincerely believe that some people will only ever be capable of truly managing their accounts if they only work in cash, and deposit, and budget accounts.

Establishing a credit record is a very important part of life, and it can be difficult but life is tough and the sooner you do it the better.

With Ian’s examples of three jobs and underpayment it is hard to say with no information what can be done to help these situations apart from having a float to cover these eventualities. A case bay case approach to pick the right course is necessary.

Finally I think humans , and properly assisted by a charity, should be far more aggressive in taking action against Banks and other businesses for their failings to deliver. Perhaps Which? would provide template letters and a recording system for this campaign.

For instance I claimed around £300 from my Bank as for some reason they sent our statements to some address 100 miles away for a couple of months. I guess things like failed BACS runs were people go overdrawn should be getting substantially more than just any service charges repaid.

What do people get when Bank systems collapse making problems for hundreds and thousands of people. ? Come on lets have a charter/petition that every time the internet banking goes down for over an hour they owe every internet customer a fiver.

I can see the point of view of various posters on this subject but I have to shade on the side of malcolm . What he says is practical ,basically ,if you cant afford it dont buy it do without , that might seem harsh to some but I had a harsh upbringing -if we couldnt afford it we went without . Not very nice in relation to modern values and thinking and caused me all sorts of problems and even social embarrassment due to the fact I had to wear old clothes etc. What it left me with was the strength of mind to know my financial limits and practical down to earth approach to money . I am no great lover of banks just look who bailed them out —–YOU ! the tax payer and yes their charges are very high for things like overdrafts but look at the TV “banks ” borrow for 1000 % +++ . What angers me is this commercialized society of -buy-buy-buy yesterdays “toy ” is old hat buy the new glossy 2017 model this is being forced down peoples throats and their kids cry out for more not learning the values of old guys like me who have only had one debt in their life –mortgage and that was paid off long ago due to hard work.

duncan, just to clarify a point. Authorised overdraft charges are not high. the higher charges apply to unauthorised overdrafts. Thanks.

When this whole country is on Internet banking then your money really will be Virtual and control over the population will be total it will be very easy for a government to use that as a means of influencing your combined decisions if you dont do as you are told. Customers who deposit money in banks are lending that money to the bank , depositors are ,in effect ,unsecured creditors in the 2008 meltdown had to bail out the banks but with protection offered to depositors changed (in the US ) the next one will leave the depositors with ???? . Money is used to speculate on behalf of hedge funds , companies and the rich -ie-bet on derivatives , governments have the power to control your money through Capital + Exchange Controls in the EU and if you own gold (not futures in gold ) then dont keep it in a bank.

suze says:
10 July 2016

Going overdrawn without prior arrangement tips someone’s account into requiring quick decisions by a bank as to whether it is fraud, a one-off mistake, or an ongoing problem. It might require items to be returned, which unless things have improved, means often lengthy phone calls and paperwork. Unauthorised overdrafts have to stay dearer than arranged ones.

Behaving responsibly with money and arranging overdrafts are related issues, but the focus of this Convo is the high interest rate charged on UNARRANGED overdrafts.

It is generally said that the cost of these overdrafts is high, but I have not found an up to date list of charges for the main banks. Perhaps someone can provide a link.

I keep my account in the black and don’t pay a penny for internet banking, direct debits, using a debit card, using cash dispensers, paying in cheques and writing the occasional one, and receiving statements, albeit no longer monthly. The only time I can remember a paying a fee to the banks in many years was recently, when I transferred money via the new Faster Payments Service. Obviously the bank has the use of my money but in these days of low interest rates I can’t help thinking that my banking is being subsidised by those who pay interest on overdrafts.

Look at the banks website for overdraft fees. One I looked at charges nothing for an unarranged overdraft up to £15 except for the normal interest rate 18.9% AER, then makes a unpaid transaction fee of £15. For an arranged overdraft the charge is 18.9% AER only. It seems an obvious choice – have an arranged facility even if you may never use it.

Thanks. Hopefully someone will provide a comprehensive list of charges made by the main banks.

Looking at my other point, are you happy that your banking and mine is subsidised by those in debt? Obviously that would not apply for customers who kept a large balance in their current account and made little use of ‘free’ services.

I have little interest in financial matters and less in politics, but strongly feel the need for a fairer society.

I think it is fair that people behave responsibly. I choose a bank that gives me what I need and I respect its terms. I don’t delve into all the complexities of its business but arranged overdrafts are readily available to those who merit them. When the terms for unarranged overdrafts are clear if you bother to read them (and they should be made clear) those who decide to use them should take responsibility for their action (or inaction).

The item on the BBC News website [that I quoted in my comment on 9 July] showed the cost of unarranged overdrafts of £100 for 28 days with six of the leading high street banks. At the time of writing it is still featured on the Business tab and I shall give the link separately since it might not be checked by the mods until after the weekend.

And the link is http://www.bbc.co.uk/news/business-36746372 – “Overdrafts more expensive than payday loans, says Which?”.

The CMA’s provisional report includes a couple of constructive proposals for dealing with unarranged overdrafts.
– Prompts/alerts by text messaging should be compulsory (on both the bank and customer) so those who may not be in control of their finances (temporarily perhaps) will know when they are about to go overdrawn. This gives them the opportunity to deal with the overdraft – transfer money perhaps – or to be aware that charges will begin.
– A compulsory “grace period” to allow time to deal with the overdraft before charges are incurred.
– a maximum monthly chagre that a bank can make for an unarranged overdraft. I suggest this should also be liked to a limit on the allowed unarranged overdraft amount.

I cannot see in the lengthy report a discussion of why people opening a bank account do not choose to have an arranged overdraft facility but are prepared to use an unarranged overdraft. It would seem common sense that if you might regularly require a “bridge” you take action to ensure it costs as little as possible – as arranged overdrafts do. If you are refused such a facility, or if you don’t bother to ask, it may be you are a poor risk. Surely we should be encouraging / forcing banks to make the options and advantages clear to customers and for customers to consciously sign up to or decline an overdraft facility?

“Behaving responsibly with money and arranging overdrafts are related issues, but the focus of this Convo is the high interest rate charged on UNARRANGED overdrafts. It is generally said that the cost of these overdrafts is high, but I have not found an up to date list of charges for the main banks. Perhaps someone can provide a link.”

wc – you seem to misunderstand the problem. It is not a high interest rate as the problem but the fees levied on the account for being overdrawn at all. However this Convo article has not helped at all in providing any clarity on the matter.

My bank
” Overdraft terms
Daily unplanned borrowing fee £6.00 per business day
This fee will be charged for each business day that you end the day in unplanned borrowing by more than the £100.00 unplanned borrowing buffer amount (unless that position was created by us adding fees or interest).
Fee cap £100.00 per calendar month
We have a monthly fee cap of £100.00 per calendar month. This cap means that you’ll never pay more than £100.00 per calendar month in daily unplanned borrowing and returned item fees. The cap does not apply to debit interest which is charged at the rate shown in the tariff. ”

My view is that anything under £20 in terms of being overdrawn should not trigger any debit charges whatsoever – I make allowances for people with bad maths. If my rule were in place then some of the cherry-picked quotes would not apply

At the risk of going off-topic and discussing advice for those who are regularly in debt, perhaps we could borrow an idea from Speed Awareness courses that have been introduced as an alternative to receiving points on your driving licence. In the same way that these illustrate the dangers of speeding, a Money Awareness course could point out the dangers of living in debt.

I wonder if any of the major banks have tried this approach.

The CMA talks about those who are regular users of unarranged overdrafts. The implication is that many have the income to balance their outgoings, so are not running up an ever increasing debt; why therefore do they not regularise their banking and agree an overdraft facility and save themselves the heavy costs involved? On the other hand, if they do not have the income to pay off their bank debt then they need to take radical action as I do not see the banks’ job as one of funding overspending clients. Maybe sell something to pay off your debt if family or friends won’t rescue you? But clearly spending more than you earn is not sustainable and should not be subsidised by the rest of us. Real need should be met by the State.

It would be constructive, I think, if Which?, perhaps with the CMA and banks, looked at what stops people asking for or getting arranged” overdrafts. Are they not aware of what is offered, do they not care and will cough up the odd high fees, or are they not appropriate candidates to be loaned money. I would have thought from all the work done this information should exist somewhere.

Advice to those who might go in debt= when a “buy this ” advert comes on = turn sound down on television . Stop pressurizing the general public into buying ,we arent all rich. Never get into debt as you are therefore owned by billionaires . But hold on — isnt that the ultimate achievement of those running the world to have a “lean ” or hold on you ? . Those of the general public not in debt are looked on with anger and criticism for “not conforming ” to society ,but who is society ? NOT the IMF/WB /ECB etc who are a small clique but you mr+ms average so you should make the rules not BB. I am trying to find a circuit that will block out advertisements I am sure it would be a big seller, there used to be one on VHS recorders till BB complained .

Never watch commercial channels live and if you decide to watch an ITV etc programme FF the adverts. Nothing breeds dissatisfaction more than the insidious adverts beamed into people’s homes non-stop.

What with a limply ineffective ASA paid for by the industry and the other commercial operations it is hardly a wonder that some of the public have very weird ideas on what is affordable or should be theirs almost by right.

And it s TV that brings us those nasty adverts for items like the Xhose which seem , judging by reports , to have minimal usage before going phut. Trading Standards anyone? Which? expose?

Incidentally those 12 million customers for Sky that provide it with over £11bn of income a year probably include people who might be better off saving some emergency funds – or even lending it to temporarily embarrassed members of the family.

We know that advertising works and the current obesity problem is at least partly due to popular convenience food and drink. I made a deliberate decision not to watch commercial TV and about the only time I see it is in other people’s houses or if I hear of a worthwhile programme and watch it on the computer. My parents were responsible with money but I believe that not watching TV advertising has helped me avoid wasting money.

Wise move wavechange , but there again you are wise , not only dont watch adverts but have built up an absolute hatred of them . I know this could be wrong but like you i think of the consequences they have on society not just on food but throughout a persons whole life cycle and the harm it causes and I feel angry for them . Irrational I know but I care so much for humanity . This wont earn me any cludos in Advertising Britain but my loyalty is not to it but people.

Herd behaviour (I prefer to avoid the pejorative term herd mentality) is exploited by companies to encourage us to spend and to be comfortable with their brand and its image. Look at the way that many people have been conditioned into counting the days until they can upgrade to the latest mobile at little upfront cost but a sizeable monthly payment to provide an income stream to the company. Many of them might be better to stay with their present phone for a bit longer and save the money to avoid going into the red. Marketing has persuaded many to spend money on bottled water. Marketing can become highly unethical, and in the third world, Nestle persuaded poor mothers to spend money on baby milk powder when they did not even have a clean water supply to make it up. In the same way that some people become addicted to alcohol and drugs, perhaps others are conditioned into spending.

Peter Young says:
13 July 2016

Bit off topic this but if you know advertising is, at best, nonsense or, at worst, mendacious lies, why are you so afraid of watching it? I admit that some of the lies about bacteria or follow on milk annoy me enough to turn over briefly but you must be missing out on some good telly.

Back on topic, I do agree in principle about money courses but I can’t see the banks paying for them. After all with speeding, the course costs the same as the fine avoided. There would have to be some benefit, eg to a person’s credit score, to get them to pay and given their probable poverty, someone somewhere would still need to subsidise.

We could have an on-line money course – maybe organised by Which? like their paper publications they advertise on TV. Could increase their membership. However, would those who do not like to get to grips with their money matters want to participate?

Alternatively the government could spend a few million on distributing a booklet to every household; they managed it for the referendum and the banks could fund it.

Love it or loathe it advertising contains subliminal messages which are picked up at a later stage
and can influence ones choices. Being aware of this is the best defence as it frees one to question ones own minds reasoning behind engaging in herd instinct behaviour.

I will be flouting the T&C’s by going further into the psychological complexity of the effects of advertising and its influence on choices Wavechange and I have to go out to shop for basic essentials today……………….

Peter Young says:
13 July 2016

Just realised you mightn’t have heard about the CAP money course run by Christians Against Poverty. It has a very good reputation. They do debt counselling on an individual basis too.

That’s one of the reasons I decided to avoid commercial TV, Beryl. The other one is that I hate misrepresentation, and advertising is full of it.

Adverts, naturally, want to sell you something. They will only tell you the “good” things about what they want you to buy. So I am cynical. Treat them as informing you of what is out there – how else might you know? – but be cynical and don’t accept their claims. If you are interested, do your research and reach an informed decision. There is no need to avoid them or to be frightened of them. Just be critical, in the literal sense, of what they say.

When the limits on ‘payday loans’ were introduced, I was curious to know whether these limits would also apply to banks and credit card companies.
I have learned, to my cost, that these charges from ‘legitimate companies’ can be utterly exorbitant!
How do they get away with it?
Why are limits not imposed on what they can charge?
Yes, the charges are specified in their terms (not that anybody actually reads that stuff!).
But likewise for the payday loaners.
So why are banks exempt from the ‘rip off’ rules?

Yes, the charges are specified in their terms (not that anybody actually reads that stuff!).

I think there must be some sort of lesson here in being responsible for your own decisions.

D2d – It could be because the pay day lenders were shopfront upstarts that were charging usurious rates for short-term loans without doing diligent checks on financial circumstances, suitability, ability to repay, and so forth, and were leading their customers into rolling loans forever forward and incurring massive interest liabilities forcing them into desperate measures, including the possibility of criminal activity, in order to escape. Some might think that sums up the high street banks! . . . but not really. Bank customers enter into a contractual relationship with their chosen bank and normally cannot open a current account without having a substantial sum paid in each month. They can then access the services available and receive, as part of their ‘welcome pack’, the information they need in order to operate their account satisfactorily. Note that it is the customer that operates the account through managing the inflows and outflows. Many current accounts come with a built-in automatic overdraft facility that is intended to cope with temporary cash-flow problems around their pay day point but it is quite likely that many customers live up to the limit of that automatic overspend allowance. Some might not have realised that if they have a need to go beyond that it would be in their interests to go into their bank and ask for an arranged overdraft for which the interest rates and fees are quoted in the information provided and on-line. The literature warns customers that if they exceed their allowances – either the built-in overdraft facility or the additional arranged overdraft limit – without specific approval there will be significantly higher charges applied to their account and that, as Dieseltaylor’s example above shows, the advice given confirms that the charges are in addition to the interest payable for the amount borrowed on a daily basis.

It has been said that people do not read this important guidance and that it is all couched in legal language and set in small print. That is not my experience. The quality of banks’ literature does vary but without exception they all try to put the information in easily readable form using plain English. Some of the documents have achieved Crystal Mark status for clarity and comprehensibility. The key features of running an account are usually presented attractively and are separate from the legal terms and conditions which have to be issued for contractual reasons but do not normally figure in the day-to-day service provided by the bank. I agree with Malcolm’s suggestion that we should try to find out what stops people asking for or getting arranged overdrafts. All manner of reasons are open to conjecture, one of them being that it will be an awkward experience and extremely expensive. Banks could do a lot more to publicise the facilities available – certainly their TV commercials don’t seem to connect.

I’ve seen repeated suggestions such as ‘Manage your money’ and ‘Arrange an overdraft’ and ‘Don’t buy things you can’t afford’, which is all rather puritan in nature. What so many seem to be failing to understand is the way these charges are levied.

Some banks charge per item, per day, per amount. In DT’s excellent example for instance, he quoted a situation where unplanned borrowing was capped at £100 per month. That, of course, is if your bank isn’t one of the many that cap at much higher levels.

Taking a very basic example chap A holds down three jobs. In Job 1 he’s paid every two weeks on a Wednesday, calculated on the hours worked. In Job 2 he’s paid weekly on a Saturday – again dependent on the hours worked. In Job 3 he’s paid weekly on a Monday (same criteria).

He shares a flat with two friends and they share the standing orders for one or two items each – Electricity, Gas, Water, Rates, Insurance and Rent. Each of these is taken from the accounts at the end of the month – twelve times a year. He doesn’t go out – either because he’s bushed from having to work three jobs or simply because he can’t afford to. As the season slackens his hours drop, so his income is significantly less. He runs a battered old car and needs it, because no form of remotely reliable public transport will get him to one of the jobs.

The astute will already note that the chances of the money being claimed on the DD coinciding exactly with any of the days on which he’s paid are remote at best. He goes to the bank and asks for an arranged overdraft facility. They ask him for salary slips and, when they see them, notice that all are for zero hours contracts. They regretfully decline.

One month, when the payment days have eased just past the end of the month, several DDs arrive simultaneously. He’s automatically charged for each DD, he’s also charged per amount and so runs up very quickly a ‘fee’ of £140.

Now, he doesn’t buy things, his parents do his washing, buy him food and some clothes yet still the DDs keep coming in. And they come in faster than he gets paid. Meanwhile, HMRC have notified him that because he does three jobs they’re issuing him the ever popular ’emergency code’ which removes from him far more income tax than he ought to be paying.

So: family chipping in, non-profligate, almost monastic lifestyle, barely managing to survive and then the bank thumps him with the bill on top.

I think it’s important to realise that this is a fairly typical example. It’s not exceptional. He’s doing everything he can to help himself yet is still having trouble, mainly because of things beyond his control. I grant it may be easy to sagely bestow wisdom on the youngster but he has sufficient problems without the banks adding to them.

” ‘Manage your money’ and ‘Arrange an overdraft’ and ‘Don’t buy things you can’t afford’, which is all rather puritan in nature. “. It is not puritan at all, but common sense for a sustainable life. At some point we all (most anyway) have to learn to live within our means.

I didn’t get a car until I could afford to run it – I either walked, used public transport, had a bike and then progressed to a motor scooter – old, cheap to maintain, run, tax and insure. If someone has an unreliable income then getting a loan will be difficult. I wouldn’t lend money to someone – other than family or a good friend – if they were likely not going to repay me. Would you?

Three people in your example might well be better placed than one to meet the bill schedule – perhaps they could borrow off each other or friends to tide them over a mismatch between bank payments and income. But if between them that income will not arrive and be sufficient and they cannot make ends meet then maybe they need to review their situation.

Malcolm: I used ‘Puritan’ specifically, and not ‘puritanical’. It wasn’t intended as an insult, but it is correct within that context. But even then you go on to tell us all how you were the very model of thrift in your youth, which is commendable, yet none of this addresses the main thrust of this topic which is about the levels and methods of unauthorised overdraft charging.

My argument is simple: no matter how careful, how prudent and how thrifty anyone is, sometimes issues beyond your control can wrest away your ability to manage. It’s fine to suggest “they need to review their situation” but if their situation is truly dire, and every other avenue has been tried should the banks then be allowed to levy extortionate charges simply to increase their own profits at the expense of those struggling merely to live?

I have nowhere suggested that inappropriate or extortionate charges should be levied. I just do not see banks as the right people to subsidise those whose expenditure exceeds their income.

Keeping track of finances is not difficult although some may want to avoid knowing the truth. that is where I would direct help. The Citizens Advice Bureau are, I believe, a good organisation to approach for such help and guidance; perhaps we should be advising people to use their services?

The CMA will produce their final report in August and hopefully that will make recommendations that will be seen to be fair.

Nil hour contracts are an abomination. Having the former CEO pf Spirit Plc co-opted onto the governing Council here in December 2015 was a disturbing event for me. Particularly given his 150% bonuses which now doubt reflected the use of nil hour contracts.

” In August 2013 Spirit had 777 branded, managed pubs throughout the UK and a further 452 leased pubs.[5] Spirit employed an average of 16,800 people in 2013.[6]
Spirit has admitted that most of its staff are engaged on zero-hours contracts with short notice of the hours to be worked.[7]” Wikipedia

Sorry I became side-tracked regarding those contracts which I consider unethical. Whether we have a plethora of cheap labour that allows employers to behave in this way is a consideration.

I have seen written someone applauding the flexibility it gives employers, say in the hospitality sector, to keep prices low. Low wages and plenty of unemployed to fill the jobs … recipe for suffering.

In the longer example you gave Ian I can see the problem clearly as I have come across these situations before. At least in my time lending I would be able to make my own decisions to provide a float. And of course in those days we used to have better details and information than the current computer systems which credit score.

I believe in co-operatives, credit unions , food banks, social organisations like churches, friendly societies, and people planning together to solve their problems. However not everyone has organisational skills or the knowledge on what might be available.

Looking at the big picture the Banks are villains for the high charges but when dealing with villains the easiest answer is not to fall into their clutches. We can then line up the ASA, advertisers in general, etc etc.

A case can be made against all of them but the crusading Which? of 2000 has been overrun with business types and quango sitters where it seems jaw-jaw is reckoned to be sufficient action. RB and Nurofen for specific aches could have been lampooned out of existence years ago but it takes our Australian cousins to really kick ass.

Your first two paragraphs I agree with malcolm , nobody is trying to “talk down to them ” perish the thought !! I am talking real life and I too went from walking to work , to a bus , to a motorbike and only into my twenties a small cheap second hand car and it was second hand cars ever after. I have said many times on this forum that, Ian you seem to be making a case for –and I agree , this country no matter how much you argue is a Service industry society, even economists and industrialists agree . To give an answer to your point on this Ian is- INDUSTRIALISE , in other words build factories and why wont that happen because we are run by banks and organizations that have only interest in City profit , they dont want factories built because that gives the people power over their money and jobs . Only,as in the US the military industry is kept going and expanded and thats down to military expansionism they would rather spend -latest figures -USA – $1 Trillion on Defense than look after their own infrastructure . Now why is that not publicized but commented on by intellectuals and Professors ?