/ 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?

Comments
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.

Vicky says:
23 May 2018

I was getting charged56p a day for an authorized 400 pounds overdraft.

Today Which? says:
Gareth Shaw Which? Money Expert, said:

“It’s unacceptable that the Financial Conduct Authority is still dragging its feet on unarranged overdraft charges, while consumers continue to be hit by these extortionate fees.

“The regulator must urgently act to restrict unarranged overdraft charges, bringing them into line with arranged overdraft fees so that we finally end these unfair charges.”

I certainly do not agree with extortionate charges and the charges should. in some way, be regulated. However, when someone bothers to ask their bank if they can have an overdraft and gives their bank the opportunity to decide whether they can afford it, why should they pay exactly the same charges as someone who does not bother to ask and may well not have the means to repay or be put in a financially difficult position by taking the money? All those responsible customers will then be funding the irresponsible defaulters.

Why encourage irresponsible behaviour?

I suspect the outcome will be that no one will be allowed an unarranged overdraft. Would that be the best result? Unpaid rent. car insurance, for example?

Patrick Taylor says:
26 May 2018

It certainly seems totally bizarre stance to take for a rational organisation. I am not sure of the authority of Gareth Shaw to make these very bold statements which seem very populist but are they official policy of the Consumers’ Association? Or is this the position of Which? Ltd Board? Or just Gareth?

I really don’t know who is making the policy[?} decisions.

I am not clear if how a multi-media journalism degree is actually one that provides an understanding of how businesses work. An average person would think that taking money without any arrangement is a different kettle of fish from agreeing in advance for a borrowing facility.

Consider how you might feel if a member of your household took to taking money when they felt the urge. Whilst it would probably not bankrupt you [or the Bank] it still raises questions like what the hell is going on.

Just to make clear I am not lover of banks having worked for them I have a low opinion of them and how they are regulated.

Just if you wondered about financial journalists training, courtesy of the Web , the author spent some early years at the Financial Times and since then has worked solely for Which? apart form 13months as Head of Consumer Affairs at Saga Investment Services. Which leads back to what is the thinking behind having the same charges whether you take or ask?

Mark Randall says:
23 May 2018

I’m afraid the days of banks being run by gentlemen has long left us my impression of people at the top of most big concerns is that of an old boys network of very greedy voracious people who’s sole ambition is to enrich themselves on the backs of the less privileged,remember carillion,or”Fred The Shred” at RBS,or the notorious Phillip Green,or even going back to the crooks that milked Austin Rover dry.

And check out some charities, Mark 🙁

Vicky says:
23 May 2018

I’ve had to get another loan as Santander were charging me 1 pound for every day I went overdrawn that amounted to more than a personal loan.

Diane says:
26 May 2018

Discriminatory treatment against…
Discriminatory treatment against transgendered person
This bank treats and continues to unfairly treat a woman who has undergone male to female transition contrary to the Equality Act 2010. They also treat a woman who is disabled under the Equality Act 2010 unfairly. Many staff do not care, but there are some who do, but this is a minority in my recent experiences. Taking legal advice is necessary because this company acts contrary to the law and legislation and take advantage of a person who has changed her name legally under the Gender Recognition Act 2004 and had operations and still in recovery. Leicester office is mainly incompetent in dealing with complaints fairly! However, Birmingham complaints office is useless.

This is a genuine factual account that should not be removed. It is factual. I have a major complaint with the bank that is under investigation. This is my personal factual experience with the Natwest Bank after 31 years as a loyal customer who has been unfairly treated contrary to the EA 2010 a number of times.

This is how the bank have left me feeling after not one unfair treatment, but a number of unfair treatments regarding gender and disability within the last 12 months.

There is nothing whatsoever defamatory in this factual statement.
I have complied with Trust Pilot and amended my factual statement of truth and belief, but feel this is diluting the scope and purpose of what a review is about.

Further unfair treatment has continued since this forced amendment from trust pilot with the bank. I have major concerns with the bank and now made another complaint as the bank had refused to let me know how to make a Subject Access Request under Data Protection Act 1998 for all of my data. The bank are currently 23th May 2018 trying to frustrate my request for all of my data and even exceed the 40 day rule for complying with the DPA 1998. Yes, I have my proof of this too.

The complaints team and bank still refusing to treat me fairly and are now victimizing me contrary to the Equality Act 2010.

Since this review Leicester have partially apologised and acknowledged wrong doing regarding a further complaint, but other complaints remain outstanding and I await my data from the bank.

I am a reasonable person, on that “Clapham Omnibus”, but have a right to complain and be treated fairly not gagged by the bank in doing so. This is contrary to the law after making complaints of discrimination. This is known as victimization contrary to s27 EA 2010 Detriment suffered and my health, infections after corrective urological surgery is also suffering most likely as a consequence of being treated unfairly. For example, being called “He” many times, during calls, when staff are aware of my circumstances, the staff being hostile towards me and being less than professional in dealing with me, to name but a few of my experiences with the bank. The list is far too long to add to this list, but hopefully can be resolved with the bank as a reasonable person. How many other people have been singled out and had their comments removed as non transgendered customers? This is discrimination and victimization singling me out where other customers have made worse comments about their experiences with the bank and not had their reviews removed.

Further more, the bank are acting contrary to Human Rights Acts 1998 Articles 9, 10 and 14. This is a also a state interference by the bank to remove my legitimate and proportionate and fair comments of my experiences with the bank and now harassing me which is a hate crime in the UK against a person who is Transgendered woman by removing my comments from Trust Pilot.

I am reasonable to amend and even remove this review when the bank treats me fairly and resolves the outstanding matters. I await the bank’s response regarding the matter.

Yours faithfully,

Disatisfied customer.”

And thats why I no longer post on “Trust ” Pilot Diane years ago I posted a legitimate and correct statement about a company and the company complained –“Trust ” Pilot removed my post . I wouldn’t trust them an inch its a case of the business is always right and the customer wrong. It says a lot that Which hasn’t censored or removed your post in comparison to TP , I am with you on the civil rights issue I do believe in real equality. You have posted very eloquently .

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