/ Money

When will the FCA crackdown on punitive overdraft charges?

Drowning in debt

Last year the Competition and Markets Authority concluded its two-year long banking inquiry, but the inquiry failed to tackle unarranged overdraft charges. Now the Financial Conduct Authority has agreed to review these unfair fees. So will this finally resolve the problem?

As many of you will know, Which? has been voicing its concerns around pernicious unarranged overdraft fees for quite some time now. Back in July, our research found that some banks are charging four times as much for an unarranged overdraft than a payday loan, making the sector a staggering £1bn-plus in funds.

At the time, we’d hoped the Competition and Markets Authority (CMA) would deliver a fairer regime as part of its banking inquiry and announce robust plans to tackle unarranged overdraft fees. However, when the CMA delivered its report in August, such plans were clearly missing.

The CMA’s plans to tackle these extortionate unarranged overdraft fees came in the form of a cap on charges, but a cap that would be set by the banks themselves. So just months after the CMA concluded its banking investigation, the Financial Conduct Authority (FCA) will now pursue it’s own review into overdraft fees and high interest loans.

Fairer overdraft fees

We were concerned that the CMA’s proposals wouldn’t be enough to control these extortionate fees. And we weren’t the only ones who were worried about this. Many of our campaign supporters told us that more needed to be done.

Some shared their dissatisfaction with the current system on Which? Conversation, too.

Supporters like JoH, who told us:

‘I have an issue with banks allowing overdrafts to people who clearly will not be able to repay the loan. A young person I know was recently allowed to run up a large overdraft even though he has been on welfare benefits from some years. This individual also suffers from mental health issues and I feel that the banks are preying on the most vulnerable to boost their profits. They should have a duty of care to their most vulnerable customers.’

As Wendy Dunne explained:

‘To charge astronomical fees to those people who go into overdraft, particularly by a small amount, is morally unacceptable. It’s like kicking someone who is already down.’

Summed up quite nicely by Keith Tindill, who said:

‘Bank customers should be treated fairly and transparently.’

These charges are a problem and action is needed, a cap that the banks can set themselves isn’t going to be enough. This is why we’ve been raising your concerns at every opportunity, as well as calling for the FCA to take action after the CMA’s inquiry failed to resolve the problem.

Most recently, our CEO Peter Vicary-Smith raised this issue at a session in Parliament declaring ‘somebody has to stand up for these consumers and say to the banks that this is the wrong way to be making profit’.

So, the FCA has agreed to investigate bank overdraft and loan fees. It was the FCA who brought forward the cap on payday loans and we hope it will act strongly here, too, delivering a fairer system for customers.

Regulator responds

[Update: 31 July 2017] The FCA has agreed to undertake further research into unarranged overdrafts after publishing its report into high-cost credit today.

In its feedback statement published today, the financial regulator has expressed concerns about how unarranged overdrafts operate and noted that charges are high, complex and potentially harmful.

The FCA believes that fundamental changes in the way that unarranged overdrafts are provided may be necessary, and it will consider whether unarranged overdrafts should have a place in any modern banking market.

While this is promising news for those who’ve backed our Better Banking campaign, we hope the FCA now acts swiftly to crack down on these exorbitant fees and restricts unarranged overdraft charges to the same level as for arranged overdrafts.

Our research revealed last year that unarranged overdraft fees can be considerably higher than those of payday loans. But while payday loan charges are capped, and the FCA will maintain that cap for a further three years, the fees of unarranged overdrafts are not.

The regulator has cited four key issues with unarranged overdraft fees, and these are:

  • Unanticipated charges and lack of transparency on fees;
  • High charges, noting that some fees are higher than the payday loan cap;
  • Repeated use in that many consumers use unarranged overdrafts regularly; and
  • Distribution of charges where the worse off are paying a disproportionate amount for the provision of current accounts.

What do you think needs to be done to make unarranged overdraft fees fairer? Can more be done to deliver better banking for you?

Malcolm Irwin says:
3 August 2017

It would be good if the Banks could implement two checks to help reduce fraud on online payments.
1. When entering a Sort Code and Account Number for the first time do an online verification and display the recipients Name and Bank.
2. When transferring large amounts, e.g. over say £25,000, let the online banking system insist on a trial transfer of say £1 that gets verified back to the sender prior to making the full transfer.
During a recent house sale and purchase I was left for some months with a huge amount to invest. This was achieved via series of Building Society Accounts. As I opened each account I did a trial transfer of £1 to ensure it worked properly. Maybe the banks should encourage all customers, doing large transfers, to do the same. Those that don’t being liable for any losses!

Brian Holmes says:
4 August 2017

NatWest and their rewards are a nightmare.
My wife and I have a joint account with them and at the start if you used your contactless debit card
You earned a reward and ours rocketed up to £1.36 and there it has stayed for ever.
Now they have started giving my wife a reward which she has to phone them and transfer it into our account.
Who ever thought up this one should be sent into space and left there.
Just the kind of help you need when you reach your eighties.

Kathy Bonard says:
4 August 2017

Yes I agree Brian,I have had £4.20 rewards from the year dot. When I look at the retailers you have to shop with I don’t remember shopping with them in the first place. They must have changed their rules or something. It’s not worth it, and about ringing them to get them transfered is a joke.I went off Natwest a few years ago. You and I are just a number to them.

Alan says:
4 August 2017

I used to have some trust in the smaller banks like TSB, then they became Lloyds tsb everything changed. Greed, deception and general dishonesty was good for them as with many other banks at that time, if they could con you and smile at the same time they would. One banks head of on-line fraud was reportedly prosecuted for on-line theft from the bank. Who would have thought it, a bank involved in theft and dishonesty!! Banks will never change their ways it’s their ethos. Where your money is concerned, trust no-one

bishbut says:
9 August 2017

Trust NOBODY these days ! NOBODY at all

Robert says:
4 August 2017

Banks should take immediate action to recover funds when a customer sends money incorrectly. They have the technology – I stopped a cheque and got a receipt for the action. The bank paid on the cheque. I pointed out their failure and they recovered the money within an hour. They can be fast when its their money!

Robert Belmore says:
8 August 2017

From personal experience, if you forget to pay the minimum amount due on your Halifax credit card by the due date, then the Halifax send you a reminder on the day after the payment was due.
Why not in the interest of good customer service, send a prompt the day before the payment is due to enable customers to make a payment on time ???
I will tell you why, because they are quite happy to slap you with the ‘late payment charge’ , which is just another way of penalising customers who are quite able to pay but inadvertently forgot to send a payment on time for whatever good reason.


It is your responsibility to know when to pay, and you do not have to leave it to the last minute. My card says to allow 2 days for a payment to reach my account, so I tend to pay a week before.have to wait until the last minute to do so.You could put reminders on your computer calendar; they are easy to set up as a recurring event.