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Unarranged overdraft fees that cost more than a payday loan


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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Mike says:
11 July 2016

These unarranged overdraught fees (ransom demands) charged by the banks are disgusting. I have never been overdrawn but can see how easily and unintentionally it can happen.
The tightest of financial management can go awry. So why not switch to a bank that appreciates this and offers a buffer. You will pay interest on the overdraught but no fees up to a preset amount. If it is a genuine slip up it can be quickly sorted and hence at little cost.
I have recently switched to the CO-OP bank. Very quick and straight forward plus they gave me £150.00. They provide a £20.00 buffer for unarranged (informal) overdraughts. So go for it folks vote with you feet. Having said that you can do it with your finger on line.
PS. I self assess for income tax, just completed for 2015/16 and owe HMRC £0.60. They will not bother to collect it. If the taxman can be a bit sensible why cannot the banks.

Im with Clydesdale bank, I’m disabled so only have benefits to o count on & not that long ago found out I was being charged £6 per month for use of my account overdraft,there are times I go over by a couple of pounds,t o which I found out that there was a £6 charge everyday my account was over the agreed limit,the thing is I don’t get to the bank much with my mobility problems,so don’t really get to know until I receive a letter usually around 4-5 days after my account goes overdrawn so end up with anything from £6 – £30 or more in charges ,which then knocks me overdrawn again the following month,they should not be able to get away with the extortionate fees.

Kay says:
11 July 2016

Tony, it may be worth you phoning your local Citizens Advice AdviceLine on 03444 111 444 to check your rights, given your disability, and to see if you can do anything about these excessive charges.

Our government balled out these banks that were ripping us of for years,
there just doing the same as usual, they only serve the rich,
we have to put them under public ownership if we want to change things.

Jim Davidson. I had an overdraft many many years ago and it was only 30 something pence I was over with I was this bank for quite a few years and what I did was phoned the bank up and said sorry it wasn’t done deliberately and then they reiburst my account I think at that time it was about £15 but as I said I wasn’t in the habit of going over my limit.

I am not happy about Which campaigns. You tell us horror stories and then say “sign our campaign”. This one is for “Better Banking”. What does that mean? Better interest rates, better advice, lower charges. What if my bank doesn’t screw me on my overdraft fees or if it does screw me but tells me plainly, in advance, what it is going to do.
Yes an unfair contract is just that. Unfair. WHICH? should make a stand but I am not happy with the bias you introduce into your “surveys”. You would be up in arms if a private company did what you regularly do. I am NOT happy. I don’t work for a bank or any financial services company and never have. I think banks are the scourge of ordinary people but that does not give you the right to introduce a bias into your campaigns.

my daughter donates a few pound a month for different charities ? there was a mistake with her credits by a few pound just a few pence short from what she donates ?the bank paid the charities but she was short for her standing orders that month she was charge by the bank for not having enough and fined by the catalog when the order was not paid?

I thought this racketeering regarding bank charges had come to an end around 8 years ago or at least been halted but clearly the banks are not getting enough money to justify those telephone number salaries of the CEO and directors etc. They and also we have allowed the problem come back hoping we had all forgotten the last time we were besotted with unfair bank charges.

Unfortunately, this racketeering will only end when we ask all our political parties to look into the problem of the ever growing divide between the rich and the poor in Britain, or what the economist will call the “polarization” .

We find that there is no such thing as competition in the UK when clearly approximate verbal agreements are made by so-called captains of industry who agree amongst themselves what to charge, and it is not just the banks – just look at the energy companies for example!

This is why all of us must fight for that old fashion term “social justice” by lobbying our politicians and lobby them before they are offered a directorship in one of the commercial rackets such as the banks.

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Joe Isaac says:
12 July 2016

I got charged by Nat West £6 for each part of a month, although I do have an overdraft arrangement. I wrote and complained and they refunded me. I also have now set up an alert if I go anywhere near the red.

M CONTI says:
12 July 2016

I cannot understand why anyone is shock and/or surprised – THEY’RE BANKS!!!!
That’s what they do, they rip you off and expect to be thanked for it.

Arranged overdrafts are generally fairly priced. Why not arrange one and avoid the charges that accompany riskier “lending” by the banks?

Janet Wallington says:
12 July 2016

We live on the New Forest near Fordingbridge. Two branches of the major banks have closed within the last year and we understand that two more are going, leaving us with a building society. There are many elderly people living in the area who are not conversant with online banking and do not have cars, this has caused great distress.

Janet, do you have a Post Office? Many, I believe, offer basic facilities for a number of banks.

Janet we had a similar problem in our village which caused quite a lot of angst amongst the locals. We do have a post office where you can withdraw cash and eventually the ATM facility attached to the bank was reinstated, the old bank now used by a local estate agent!

Not long ago there was much public debate and regulatory action about the huge cost of payday loans. Bank overdraft charges are of a similar level. Why isn’t there the same publicity and action?

PeterT, they are not at the same level. An arranged overdraft is inexpensive. The high costs in % terms of unarranged overdrafts for many banks are only comparable to payday loans on very low overdrawn amounts. One bank I use offers no charge up to £15 overdrawn, then 75p a day. So yes, it can be expensive in % terms if you only slip over by say £20, The answer is either to arrange an overdraft facility, or to ask to be sent text warning as soon as you go overdrawn. The CMA is intending to make this compulsory, together with a grace period to correct your account before you incur charges.

Before you make claims that they are reasonable I suggest you read Amanda Keys comments about Nat West. I am afraid you are defending e indefensible.

If you read my other comments, Ray, I have pointed to the banks I use that give a £15 unarranged overdraft before any charges are imposed. I hope the CMA will make this universal, as they propose with text warnings and grace periods. I am not defending banks, simply pointing out what is available.

But why not comment on arranged overdrafts?

I know of someone on zero hours contracts whose has no work at the moment, whose tax credits never arrived, whose Bank is charging him, wait for it, £6 A DAY!! Nat West. They should be closed down. Zero hours should be abolished…I shall campaign and campaign and campaign until I have no breath in my body.

No wonder the world is in such a s**t state!

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It isn’t the bank’s fault your friend is on zero hours. We need to be clear about where responsibilities are.

I know exactly what my Building Society would charge me – £19 plus £15 per item until I’m back in credit. I find these charges fairly outrageous, but part of the reason I know these amounts and am with a Building Society now are the same reasons I did not have a Bank account at all for nearly 20 years: a) my business account at Barclays, back in the early ’90s, when having a deposit of £200 and a withdrawal of £40 presented on the same day of course decided to pay the withdrawal first so they could charge me £30 out of the deposit, and soon after this my personal account at the TSB, following a “friend” letting me down on a payment, charged me £35 for doing nothing (including informing me!) except not paying out when my rent was due. As I said, very soon after these incidents I went to a cash only economy, and if it hadn’t been for an A/C Payee only compensation cheque for a traffic accident I would have very happily stayed that way, but as I HAD TO open an account I decided Building Societies are probably at the lower end of the thieving scumbag scale that is the banking industry and went to one – but I’m still not particularly happy about it!

I was charged £27.50 for being £0.04 overdrawn which I thought was absolutely abdominal, so I telephoned the NatWest and I did manage to get it quashed after I threatened them with exposure to WHICH!

That must be a record, Amanda. A real pain in the gut. 🙂 We need to teach some businesses how to behave intelligently.

I have pointed to banks that do not charge for an unarranged overdraft until it exceeds £15, and to the CMAs proposal to make compulsory text warnings and grace periods. We also, of course, need to teach some individuals “how to behave intelligently”, as you put it.

I do not condone NatWest’s charge but remember that inevitably accounts are run by computers that will automatically impose the charges that the customer should be aware of. I have had charges removed by speaking sensibly to the bank and without threats, as goodwill when I pointed out the excessive (but clear to me) charge when I slipped into the red by not monitoring my finances properly for a couple of weeks.

I worked for a Bank, there is no compassion given to the customer. One mistake regardless of how much overdrawn and the full fee is charged, which can disrupt the people on limited budgets and this can set off a month by month Rolle coaster of extra fees.

The only time I have come very close to having an overdraft was in my early 20s when I was had a motor accident caused by a motorist who drove out of a side road. I was flat on my back for about 6 weeks, housebound for three months. My work was funded by the Medical Research Council, which continued to pay me, albeit at a reduced rate, until I was fit to return to work. This involved lab work and I had to regain adequate mobility before being allowed to go back to the university. That was in 70s when it might have been difficult to move money from the Abbey National Building Society, where I was saving for a mortgage deposit. I had wonderful support from my parents and friends and with the amount of pain I endured – not least at the hands of physiotherapists – avoiding an overdraft was not the most important thing in my life. I do hope that my bank would have been understanding if my direct debits had taken me into the red.

The title of this Conversation refers to the very high interest rates for unarranged overdrafts. Is it right that anyone should be faced with these rates and possibly other charges? I have seen no justification, though I wonder if some see them as a punishment for failing to manage their money responsibly.

Which? does not investigate why people use unarranged overdrafts instead of trying for the arranged version. This would be to the advantage of the account holder and sensible financially. Understanding why people do not take this option would be illuminating and very relevant to this Convo, We might then be able to find ways of changing the situation to the benefit of all.

CMA will produce a final report in August that addresses proposals to many of the points raised.

I don’t deny this would be useful but this Convo is about the high charges for unarranged overdrafts. Do you think they are acceptable or should action be taken to reduce them? If they are acceptable then is it because people who use this service deserve to be punished or because it’s a good opportunity to make a profit?

This Convo, like the press release, focuses on one aspect only and presents a deceptive case.

Most unarranged overdrafts will not cost more than a payday loan if used responsibly (although using them generally is, in my view, irresponsible).

Why focus on unarranged overdrafts when for many there is a reasonable alternative if you are likely to overdraw? Arrange a facility with your bank and then you will not pay these higher charges.

Why do we not investigate why some people do not ask for their bank to arrange an overdraft facility, or why their banks might turn them down? And why do they not read the costs the banks charge?

Which? could publish the costs of arranged and unarranged overdrafts from the main lenders so we could see the facts and make a considered judgement, instead of responding to populist headlines.

Why does Which? not show people how to get their finances in better order and help avoid times when they run out of money?

Its fine to lambast institutions, and many like any opportunity to do that. But equally do we want a state that looks after everyone and takes away the requirement to stand on our own feet and learn to deal with life? Or do we want people to learn how to look after their affairs and take responsibility for their actions? (Before any one jumps on this, I exclude the genuinely needy and vulnerable who should be given special help).

I wondered if you would duck the question, Malcolm. 🙂 Let’s compare this with the unreasonable charges issued by some companies for overstaying. Most of us are agreed that high charges are unacceptable and unfair. Like unarranged overdrafts, there ways of avoiding them (in most cases), the most obvious one being to stick to the terms of the contract and not overstay.

My view is that we should get rid of ALL excessive charges.

Please don’t go down the “ducking the question” route just because you may wish to ignore what is said. It is not a fair comment.

If you read my comments you will see I am against unfair charges. Just as in parking charges their is a reponsibility on the user to observe the terms but, as I have said there, the penalty should be a realistic reflection of the costs involved and related to the parking cost lost.

My criticism here, having stated charges should be fair and pointed out that banks I am familiar with are not unfair in my view, But the questions that also need answering are above. Otherwise this sort of Convo does not advance the topic, reach any constructive ways forward, it just descends into negativity. Who, for example, had suggested what the charges for unarranged overdrafts should be. Who has suggested ways of encouraging people who qualify to arrange overdraft facilities?
We need constructive proposals, surely?

Hi both, just stepping in to bring things back to a friendly debate… both of your view points are valid.

Some links that you might find useful/interesting. We have advice on picking the best bank accounts for an unauthorised and authorised overdrafts which we linked to from useful links: http://www.which.co.uk/money/bank-accounts/reviews-ns/bank-accounts/best-bank-accounts-for-unauthorised-overdrafts/ http://www.which.co.uk/money/bank-accounts/reviews-ns/bank-accounts/best-bank-accounts-for-authorised-overdrafts/

You can also see all our responses to the CMA with our research and thinking on unauthorised overdrafts and why we think things need to change: https://www.gov.uk/cma-cases/review-of-banking-for-small-and-medium-sized-businesses-smes-in-the-uk

Here are a few:


Does Which? not think it better to encourage people to request an arranged facility for an overdraft? And do they not think it worthwhile finding out why people do not do this? It would resolve a lot of charging problems.

I confess to getting frustrated when I see a responsible organisation like Which? focus here and in press releases on unarranged overdrafts as if somehow they are a normal way to operate your finances. Why should we condone their use instead of pointing to the appropriate facilities offered? It just seems so obvious to get people to make legitimate provision
for a possible shortfall.

I accept that when some fall into overdraft, either with no arrangement, or beyond their limit, the charges can, from some banks, be too high. We should be working on what realistic charges should be. Hopefully the CMA will deal with this. No mention of their work and proposals here or in the press release, as far as I know.

Sorry Patrick, i’m sure my remarks may not be popular with you but I have a wish that Which? would adopt a fair, balanced and objective stance on important issues like this.

Thanks Richard. If this was just a Convo about unarranged overdrafts it might be interesting but less contentious. However Which? have also gone “public” with a partisan – and I think misleading – press statement that seems more designed to grab headlines than to inform.

However, your points: ” so there is a question over how well incentivised they (banks) are here!” Agreed. But why ignore the behaviour of customers who cannot be bothered to arrange an overdraft – it it easy if you qualify. They bear responsibility for putting themselves in a situation they could avoid, and paying unecessarily for it.

“It can be difficult to predict when you might need to access additional money”. Of course, but if you keep track of your finances, and most of us can, or could if we tried, you can then know what effect an unusual situation will have on you financial position and be in a better position to know how to deal with it. Either arrange an overdraft, a loan, sell some premium bonds if you have them, borrow from the family. But it is each person’s responsibility to look after their affairs and take appropriate actions.

“unarranged overdraft charges should be set at the same level as arranged overdraft charges”. Because of the risk attached to unarranged borrowing this would mean those who are good risks would support those who are bad – because they will pay more. My overdraft costs me 19% a year. I use it little. Why should I pay more to subsidise those whose payments are refused – causing work – or who may not repay the bank. Perhaps the bank would simply not take on these customers in the first place, or terminate their accounts. Who would that help? I am quite unable to understand the logic of this proposal from Which? It flies in the face of making people responsible.

The CMA have done an investigation and Which? have had ample opportunity to contribute. I hope CMA are coming out with proposals that address the problems but we must accept that there will always be a compromise – no one will get everything they want because there is more than one side to any problem.

Hi Richard – I support the idea of having the same rate for both arranged and unarranged overdrafts, mainly to get rid of the unfair charges for the latter. There needs to be encouragement for customers to keep in touch with banks as soon as they know they may have a problem, though it is well known that some are unwilling to admit even to themselves that they are having problems.

It seems to me that overdrafts can result from both poor money management and various forms of addiction to spending. For example, I have known people who find it difficult to avoid bargains, even though they would balk at major expenditure on products that be in use for years and could offer good value. Likewise, there are those who insist on buying expensive designer goods that they cannot afford. I wish Which? every success in helping to tackle the problem of people living in debt but do believe that the onslaught of marketing has a lot to do with long-term debt.

The CMA provisional report says:
“62. Which? proposed to us a different kind of cap, where charges for unarranged overdrafts would be required to be the same as for arranged overdrafts. This proposal has some attractions, but even more than with a centrally regulated MMC we were concerned that it might cut off access to unarranged overdrafts to many bank customers who need this form of credit.”

(MMC = Maximum Monthly Charge proposed for unarranged overdrafts)

Withdrawing privileges might help to cut down temptation to overspend. For example, inactivate contactless and phone payments and/or decrease the daily limit for withdrawals at ATMs. Anything is better than hitting customers with excessive charges.

Contactless payment machines are appearing on bars. Like sweeties near supermarket tills, it offers too much temptation.

No one has to give or lend you money if they do not want to . Would we prefer a situation – following on from Richard’s contribution – where, if you had not arranged an overdraft facility with your bank, the bank refused to allow any payments or withdrawals that exceed your balance? Indeed, even if they did not, perhaps you should be able to request that your bank never allows you to go into overdraft and thus you never need to pay any charges. A simple text message could alert you to that situation.

This would avoid the banks needing to write off debts of some customers but overall it would mean a significant loss of income and I suspect that customers who keep their accounts in the black would not be pleased to have to pay for banking services, even if this is fair. It’s a pity that most of the comments are coming from those who have little or no experience of being in debt.

Patrick has asked to keep this at conversational level. You will not know whether most of those commenting have experience of debt. Whether they have or not does not mean they do not make constructive comments.

If we are debating charges it is fair to know the background to them so a decision can be reached upon their fairness.

I don’t understand Which?’s expectation that banks should be forced to lend people money against their better judgement at the same cost as those who act responsibly. It not only penalises those customers who are responsible in their dealings with their bank, but also those who deal properly with making provision for an arranged overdraft. The responsible will end up paying for the irresponsible. Someone has pointed out that banks are commercial organisations, not charities.

I believe all charges should be transparent and fair, as in representing both costs involved and acting as a realistic penalty to people who choose to abuse their account. I say choose to, because commenters have pointed to those who inadvertently just go into the red can talk to their bank often with positive results.

The first steps should surely be to encourage people to arrange an overdraft facility and to help people learn to budget their finances to avoid, or predict, unpleasant surprises. I’d like to see a constructive approach to this subject, alongside the push to contain excessive charges (incidentally a move already taken by a number of banks as the addendum to Which?’s press release shows).

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I’m sorry to keep looking for facts and information, but it would be useful to know how much banks have to write off each year in unrecovered unarranged overdrafts plus costs involved, and how much they make in charges on this form of borrowing.

They made £1.2bn last year…

Thanks Ian. That was the revenue in 2014 but does this take account of the losses created by defaulters and the costs of dealing with unpaid and returned transactions?

Banks responses to this topic – as an addendum to the Which? press release (not included in the Saturday DT):

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

HSBC response: “We would always encourage customers to contact us if they need to arrange a formal overdraft or an extension to their existing formal limit. Where customers do contact us first the charges would be limited to debit interest only and for our Bank Account customers the total charge for a debt of £100 for 28 days would be £1.40.”

Lloyds response: “Unplanned overdrafts are designed for occasional spend rather than long-term borrowing, and being in an unplanned position for a sustained amount of time is not representative of typical current account behaviour. The vast majority of our customers who use their overdraft remain within their planned limit in an average month, and the process to agree a new or revised limit is quick and simple.”

Nationwide response: “We would always encourage our customers to pre-arrange a suitable overdraft to ensure that any borrowing on their current account fully meets their needs. Only a small number of our customers use unarranged overdrafts, and we look to work with and support customers to ensure they have accounts which fully meet their day-to-day financial needs.” Nationwide will waive fees the first time a customer contacts them after inadvertently going into their overdraft.

RBS response: “We encourage all of our customers to contact us if they are going to enter Unarranged overdraft regardless of the amount or the length of time. This is an expensive method of borrowing and there could be a number of alternative solutions such as putting an arranged overdraft in place, and the costs are considerably less. Our Act Now Alert service would alert the customer to being in unarranged borrowing and that they should take action.”

Santander response: “We provide a range of services to help our customers manage their money closely. These include online and mobile banking, email and text alerts which can be set to warn of an overdraft or unpaid transaction, a £12 overdraft buffer, a grace period of until 4pm to clear an overdrawn balance, and 22 days’ notice of account charges.”