/ Money

How do we tackle extortionate unarranged overdraft fees?

The Financial Conduct Authority (FCA) has said it will be looking into the high-cost credit sector, which includes overdrafts, next month. But is this too little too late, asks our guest author Rachel Reeves MP?

The announcement from the FCA shows that, despite calls for urgent action to be taken to tackle punitive unarranged overdraft fees, the Authority has failed to make it a priority and has delayed work on this issue once again.

The scale of harm to consumers, particularly vulnerable consumers and those struggling with persistent debt, is clear. And the case for the FCA to take action couldn’t be stronger.

Over two million people in the UK have permanent overdrafts, with many stuck in a “vicious cycle” of borrowing, according to the debt charity StepChange. Which? previously found that customers needing to borrow as little as £100 through an unarranged overdraft could be charged up to seven and a half times more, or £156, by some high street banks than the FCA allows payday loan companies to charge.

Furthermore, new research from Which? shows that attempts to tackle these fees, through the introduction of the Monthly Maximum Charge, appear to have made little to no difference. The majority of banks assessed are continuing to charge customers extremely high fees for relatively little money borrowed.

Unfair charges

Obviously there is something very wrong with this picture, and in particular there is an issue with how banks treat customers who are heavy overdraft users. These consumers are easily identifiable by banks as being in financial difficulty and yet the fact that they continue to be penalised with sky-high fees is stark evidence of an industry that isn’t treating customers fairly.

The FCA has a responsibility to protect consumers and needs to do more to ensure that consumers are always put first. The continued lack of action from the regulator on this serious issue is concerning and that’s why I, as part of a cross-party group of MPs, am happy to support Which?’s calls for urgent action to be taken.

I have been a long-term supporter of Which?’s calls to tackle unarranged overdraft fees and have campaigned on this issue in Parliament. In 2017, I introduced a Bill on Unauthorised Overdrafts having previously secured a debate on the topic.

Now we want to see the Government intervene swiftly to give the FCA the power to implement new regulations that cannot be challenged by the banks.

What do you think should be done about the fees that bank charge on unarranged overdrafts?

Sioux Hazeldon says:
31 May 2018

This is a disgrace, the bank’s should be made to pay so much back to their customers. It’s as bad as the ppi that had to be paid back. Banking services are expensive enough! They charge enough as it is to look after OUR money, then give us a limit on how much per day we can draw out.

Nick Jung says:
1 June 2018

Overdraft fees should be linked directly to the published RPI or similar criteria. This would make assessment easy…..and force the government to publish accurate figures that reflect reality

Anthony Doran says:
1 June 2018

I have decided that banks make money out of normal high street people by trying to get them into debt. There are many ways they do this:- they have introduced contactless cards (which will allow you to go into overdraft oftentimes), they have accounts which allow themselves to go into unagreed overdraft unless you specifically ask for a blocked account and they have these mysterious mini-statements which lead you to believe you have a certain amount of money in your account which if you use it places you into overdraft.
I am convinced the `normal’ customer is more of a nuisance to banks unless they can get them into debt with them, and then they can apply the extortionate charges, strange interest periods which seem to overlap so they can swipe a bit more out of your account when you thought it was all over when you least expect it. They are cowboys. But maybe that was the way it always was with those who hold the purse-strings!

Colin Harthill says:
1 June 2018

I believe that banks in general take a very arrogant attitude towards their customers and seem to believe they can do pretty much do what they want with impunity, falling on customers in financial difficulties like buzzards.
In my oppinion the first thing that needs to happen is that parliament needs to pass laws to control what charges banks are allowed to make and determine a universal maximum scale of charges for the various things which banks are allowed to charge for.
The banks must be legally obliged to agree to adhere to these maximum charges and if they don’t or are found to have on occasion to have exceeded these charges then the government must apply pre-determined heavy fixed penalty daily charges on the banks until they comply or for the number of days for which they have not complied. These penalties should be automatic and could possibly be claimed through the revenue system so that the banks could be prosecuted through that system if they do not pay.
Until bank charges are controlled by law the offending banks will continue to see their customers who occasionally and often accidentally go into the red as cash cows who they can exploit and bleed continuously like the legalised loan sharks which many of them resemble.

Michael Hunter says:
1 June 2018

I agree. FCA should govern the unauthorised overdraft fee system. Have a uniform table of charges applied to all banks. The banks should be allowed to set their charges within a certain range of the table to provide a level of competition between the banks.

Penelope Taylor says:
2 June 2018

Agree 100 %

Doris Cakdwell says:
2 June 2018

I agree that something should be done to outlaw these rip-offs.
These charges are extortionate but the way to avoid them is to set up an overdraft, that you will use only in dire emergency, but then you pay a reasonable rate when circumstances demand it.

DerekP says:
2 June 2018

Doris – I think that is the problem n a nutshell. Prudent folk can avoid these charges but only regulation can protect imprudent folk from their inherent vulnerability to sharp practice.