/ 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.


Credit card companies could help by sending out text reminders a couple of days before the deadline for payment, in the same way that banks can offer alerts when the credit balance falls below a specified amount.


I arrange the payment as soon as I receive the credit card statement. Using the faster payment service I can specify the day on which the payment will be made from my account and land in the payee’s account. I usually arrange for this to take place three banking days before the due date. If I need to transfer funds from another account into my current account to cover the expenditure I can also set the transfer up in advance for execution on a specified date.

The banks have provided us with several useful facilities to help us manage our personal finances.


I pay my credit card bills in full by direct debit. That might not help Robert but I understand there are cheaper ways to borrow money, even if they are less convenient.


I have one credit card for occasional personal expenditure where I like to have a bit more flexibility over the repayment arrangements. The other one is cleared by direct debit but it is still necessary to ensure that funds will be available in the account to cover it.

bishbut says:
9 August 2017

Do forget to do all things ? do you need reminding when to do everything like when to eat or when to go to bed Who sends you those Emails? Emails to remind you to read your Emails or a text message or a phone call to tell you what you should be doing at any time That’s what some want or need !


You could set up a direct debit to pay your credit card and then you would not need to be reminded of the payment date.


I have done that for years and now have 19 direct debits, so I can forget most bills. I do not pay insurances by direct debit because my loyalty could be rewarded with a price hike these days. I don’t need to remember about the renewal of the MOT on my car because I do this soon after it has been serviced. Dental and other appointments go in the phone and appear on the computer calendar.

The possibility of punitive interest charges helps to remind me to check my bank account periodically.

R Ainsworth says:
16 August 2017

All local branches seem to be closing. You are expected to travel large distances to the nearest branch. Not everyone can travel long distances and not every one has the facility for internet banking. Like ‘the hole in the wall’ internet banking is not always secure even though we are told it is. I was so disappointed when my local branch said it was closing that I decided to move banks. However I am now wondering how long it will be before the bank I have moved to will also be closing its local branch! Elderly people will be hiding their money under the mattress again!! We are told it cost the banks more to have the local branches than it does to bank over the internet but what about customer care!?!


Have you seen the exorbitant charges being levied on Approved overdraft charges by Lloyds bank, the old overdraft rate was 19.89% but from November the charge will rise to 1p per £7 overdrawn per day (charged daily), this equates to over 52% without taking into account the compounded interest.

This is a ripoff and needs immediate action IMHO.


Seemingly because they’ve made charges the same for unarranged as arranged overdrafts. I cannot see the logic in not encouraging people to simply ask their bank before they go overdrawn.. I think the effective interest has gone to 63% (speaking from memory).


When I was a branch lender I would recommend that people borrowed on personal loan or from family sufficient to run their current account in credit and totally free of charges. Given the current overdraft rates one would be sensible to do this again.

To make life easier for some it helped if they regarded £100 as equivalent to £zero and based all their calculations on this fictitious figure.


My late bank manager son used to say you need to keep about 10K in your current a/c to cover all emergencies or unexpected expenditure such as general household repairs or car breakdowns.

If young people could either borrow (as Patrick suggests) from relatives, interest free of course, or spend a little less on their weddings or ask Mum & Dad to give them cash instead, it would save them a considerable amount and alleviate some of the stress and worry of extortionate bank overdraft fees.


I very much agree that it is important to keep money in reserve in cases of emergency. My approach is to keep enough in my current account to make sure that I will not go into the red and to keep the spare funds in an instant access account, so that it can be transferred to the current account promptly if needed. These days it can be hard for young people to manage to build up a reserve.


Young people today have been raised in a materialistic buy now pay later credit society which has now become the norm, and so this makes financial reserves harder for them to build up.

The fundamental point which seems to have been missed in this topic is, your bank manager knows more about you than you realise! He/She knows exactly how much you earn, how much you spend, where you go to spend it and what you spend it on. He/She is able to establish your attitude towards money, your lifestyle, whether you are an extrovert or introvert and whether you are legally wedded or cohabiting. He/She is then able to assess whether you are a good candidate to lend to or whether His/Her bank can make a few quid by almost guaranteeing you will go overdrawn on your account.

When I split up from my ex husband I arranged a meeting with our bank manager to ensure the mortgage would continue to be paid during the divorce process and I was surprised to learn he probably knew much more about my husband and what he was getting up to than I did!

Most banks and their managers will treat you with leniency and respect when they know you are quite capable of looking after your own monetary affairs and will help you out if and when you hit hard times, but never forget, banks are big business and are in it for profit and it’s entirely up to you whether that profit is made at your expense.


Student loans help many into debt and perhaps into believing that this is acceptable.

But back on topic, can we all support abolition of punitive interest charges?


Students today are the victims of political policies which allow banks to capitalise on the less well off in society who will continue to stay less well off for the best part of their working lives.

bishbut says:
21 August 2017

Manage your money better so that you will not need an overdraft is one answer to the problem. To me the most sensible and the best way


Sadly, there are many who are trapped by outgoing costs and variable age payment dates.

Peter Kimberley says:
11 November 2017

I would like to add a comment regarding bank overdraft charges. It is good that the banks have been taken to task over punitive un-arranged overdraft charges and about time too. However their response or, more particularly Lloyd’s Bank’s response, is to virtually triple overdraft charges to all customers who have arranged overdrafts too. At the same time as moving from a monthly charge to a daily one this bank has increased its charge from 1p per day per £20 borrowed to 1p per day per £7 borrowed. This means that anyone borrowing £7 on overdraft will pay 1p that day. Should that £7 be borrowed for a month then the interest charge will be 30.4p (taking the average number of days per month over a year). If that £7 is borrowed for a year then the interest charge will be £3.65. That is a staggering 52% of the sum borrowed. This is surely an unacceptable charge for something that has been agreed with the bank. That is nearly 3 times the average rate for borrowing on a credit card. It beggars belief that the FCA has let them get away with this. The bank’s “excuse” appears to be that we can all pay off or pay down our overdraft (exactly as one can with a credit card) but that does not hide or excuse this truly unacceptable level of charging. I would urge which? to take this up with the FCA and the financial press. This bank deserves to be exposed for this dreadful behavior.


Probably a case of the responsible borrower being penalised to placate the irresponsible lobby, Peter? Best to use a credit card or a personal loan and avoid an overdraft – or change banks.