/ 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

The banks need to change their policies on UODs as a matter of urgency. There can be no justification for the levels at which they are currently set. One solution: do away with UODs completely, and move to a single OD facility, beyond which money will not be made available.

Having a single overdraft facility with fixed limit might be a step in the right direction. We certainly have to get rid of punitive interest rates.

We should bear in mind that banks are providing overdrafts as a service. This is not without risk, since some customers will never repay the money, but overall the banks are making a great deal of profit from those with overdrafts. The previous Conversation gave a figure in the introduction.

You don’t, in the intro, see fit to discuss arguments made in the Convos for and against these fees. Is Which? not in favour of making a fair and balanced case? I believe the fees are too high but I also believe there needs to be both an incentive to agree an “arranged” overdraft with your bank if they accept you as a suitable customer who can handle the debt, and a disincentive to continually take more money than you have without agreement. One way of dealing with this is for banks to only allow overdrafts to anyone who has made an arrangement. There are downsides to this when, for example, a monthly payment might be prevented, for car insurance perhaps.

You keep quoting “some banks are charging four times as much for an unarranged overdraft than a payday loan,”. Perhaps you could show the calculation to support this. In my experience this has been the application of a fixed daily charge to a relatively small loan, plus penalty costs. It is not a good way of charging, and is being addressed even if not to everyone’s satisfaction.

Incidentally I seem to remember when Which? went in front of a parliamentary committee they chose not to condemn payday loans and we still have them charging extortionate rates of interest from vulnerable people. Perhaps this is an area that should also be campaigned against?

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Yes, the fraud on Tesco Bank’s customer accounts is both massive and alarming. It was also extremely rapid with [according to reports] bulk account interceptions and transfers. Tesco Bank, not its customers, will be the losers, and the fraudsters know that which is why they act with such impunity. It is causing customers distress, however, and the worry is that the same method can be perpetrated at other banks so I hope they are all raising their security levels.

One thing became apparent from this incident: Tesco Bank were quick to notify their customers by text messages of irregular activity on their accounts but were not equipped to handle the volume of calls such an announcement provoked. That is not really surprising given the volume of thefts but it shows the need for financial institutions to have the resources and facilities to cooperate during such an emergency.

unnarranged overdraft fees – the Conversation spell-checker works.

When I used to open accounts I use to explain in detail to new account holders that what happened if they abused the system. In those days we had the direct power to close accounts where we felt the relationship was not going to work for them and us.

When everyone customer was viewed as a marketing opportunity I do wonder if opening procedures were slackened . My wife actually designed the opening procedures for both personal customers and small businesses for one of the largest UK banks. These were overlaid later with regulatory rules which I believe has lead to a box-ticking culture and nobody turned away.

This has facilitated I believe people who have accounts who should not have a current account or credit cards, and rogues. The decisions on lending and bouncing payments is now machine driven and there is no real discretionary lending in the banking system.

Driving done something to be cheap can be done and it has consequences as much for washing machines and Bank account costs.

“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’.”
How true that making profit can distort the institution. I blame the executives.

I didn’t realise there was a spell-checker in Which? Conversation, Patrick. And I am still not convinced as I am sure there are only two ‘n’s in ‘unarranged’.

Thanks Patrick, that typo has been corrected.

A misspelt (not recognised – misspelled is) word is shown by a wavy red underline John. There are only two “n”s in unarranged. Unnarranged is also shown as wrong by the spell checker which means it does not recognise the word. Possibly because the spell checker is American. Maybe they’d prefer “disarranged”. I wish we could have the option of a proper English spell checker; we did invent the language.

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Malcolm – I thought whether or not your work was spell-checked depended on which browser you used. Until recently I had no spellcheck on the desktop PC where the browser was Bing whereas on the laptop there was automatic spell-check because I used Chrome. They are both now using Chrome. Google gives you the American English without the option.

Initially I misunderstood Patrick (T)’s comment because I didn’t realise he was quoting the wrongly spelt word ‘unarranged’ from the Intro which was spelt with an extra ‘n’. Lauren’s post enlightened me. In correcting the typo it has left Patrick’s first sentence a bit puzzling.

Which? Conversation is an interesting place because we get mainly UK English, occasional American English [including different words for the same meaning sometimes], and quite a lot of Internet English which has no rules. So long as it makes some sort of sense it doesn’t bother me.

John – My Apple computer allows selection of UK English as the default language, though there is a warning that it might not work with all browsers. I don’t see a language selection within my (Safari) browser. I hope I wont’f face punitive charges for my misteaks.

I have a theory, that should equally well apply to the BBC, that if your business is communicating with the public in print then there should be a financial disincentive to using English poorly.

Possibly the use of editors is too expensive but a reputation for sloppy checking before going into print does not do the organisations reputation much good.

There is also ” 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.”

Many people at this stage would have appreciated a link to this research as when they see the word “some” this indicates a possibility of partial truth. Does “some” mean 1 in 10 or 3 out of 4.

Such an important claim needs a link. Here is one:
http://press.which.co.uk/whichpressreleases/overdraft-charges-more-expensive-than-payday-loans/

I have not bothered to look at this detail previously but one thing of interest is that I had not realised this “research” is based on someone with a £1000 existing arranged overdraft who chooses to exceed the arranged limit by up to £100.

I am loathe to get deeper into it as it seems to me to be artificial given that pay-day loans are a different type of lending which is totally not one were you can exceed the limit as they pay you.

The responses from those Banks tested seem reasonable . If Which? wanted to do something worthwhile perhaps they would have articles of thrift and frugality, thrift Associations, community Banks, etc.

I have absolutely no compunction about kicking banks ………..” The documents confirmed that bank staff were rewarded with higher bonuses based on fees collected for “restructuring” business customers’ debts – cutting the size of their loans and getting cash or other assets from the customer. In what was described by an RBS executive as “Project Dash for Cash”, staff were asked to search for companies that could be restructured, or have their interest rates bumped up.”

Anyone who believes unwarranted bonuses can distort peoples judgement and ethics have no need to look far.

I also use Chrome John. I hadn’t thought of the browser as doing this job. Thanks.

The selective use of untypical (atypical?) “facts” or information that is used sometimes to support dubious arguments is something I find worrying. Usually used to raise a hostile reaction. Balanced, fair, objective and factual might be a good way to inform people? The basis upon which claims are made should also be given, as should the basis upon which “surveys” have been constructed and conducted. Then proper critical discussion can take place. 🙁

One of the root causes of financial difficulty is some people’s inability, fear, to understand and manage their financial affairs. As well as chastising them, and the banks, for misusing accounts and for imposing penalties, nothing seems to have been done, or even suggested, to help with basic financial education. Show people how to budget, how to keep track of income and spending, and we might benefit many of the people who get into difficulties. The banks, Citizens Advice, Which? could all do this instead of just spending time papering over the cracks and complaining.

One of Which?’s objectives is to educate the public. Perhaps it should seek to address this with other interested parties (even the Government??).

From speaking to a relative who works for Citizens Advice, there are many reasons why people get into financial trouble or pay excessive prices for energy. Alcohol dependency and disability are common problems, apparently. I am fully supportive of providing financial education and encouraging savings and this would best be done at school to get young people into good habits. Parents may be able to help but maybe not if they are living on credit, which their children could regard as normal.

For most people school currently is too late. we could make a start by educating those who are receptive.

Excessive prices – housing and food are a significantly bigger part of most peoples’ budget than energy.

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Are you sure you are in the right Convo duncan?

The Banks seem to think we’re doing them a favour by banking with them,
Went over my overdraft limit they then slapped on £85 of fee’s then bounced direct debits, destroyed my credit rating and refused to help.
Despite having a £44,000 salary I even told them I was transferring £75,000.
I was also told to perform a “swear to pay” in money, despite paying in my monthly salary in for the past 37 years.
They turned into a pack of wolves,.
As a result I’ve been of work with anxiety they have turned my life into hell.
This needs to stop, they are destroying people and have absolutely no compassion, how can it be allowed to put people like me in a living he’ll all over £50.

Mine came to £300 in fees a month, I ENDED UP BANKRUPT, I wanted to change my overdraft payment by one day for my wages to go in, they refused. I was trying to catchup with the fees alone for a few months and it accumulated to a £1200 debt. I could have paid all my bills if not charged, so all my creditors suffered as well by not getting paid at all.

I foolishly loaned my daughter’s partner money on several occasions which, unsurprisingly was not paid back when promised and consequently, my current account became low in funds. The bank/building society, Nationwide, refused to pay each and every one of my Direct Debits, over a dozen of them and, because I had ‘forced’ them to do this, I was charged £30 for each unpaid Direct Debit, plus a £20 fine for exceeding my overdraft limit, plus around £20 in interest. This happened on a monthly basis!
I gave my daughter my cards and PIN for my savings accounts and asked her to transfer monies to cover the losses in my current account but, unfortunately, she entrusted them to her partner who withdrew money on a ‘One for you, one for me basis. This was sporadic though, and what Nationwide did was regular, every month. They did by far the most damage through their usurious practices – I could have understood if they’d charged me £30 to cover all of unpaid ODds but £30 each, plus additionals eventually wiped me out completely and I lost everything, including my life savings and eventually filed for bankruptcy!
Banks are definitely NOT there to help!

marisa says:
24 May 2018

They are not doing us a favor at all on the contrary they love to keep us in debt because that is what it makes them rich

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With regards to punitive overdraft charges, I did refer the matter to more than one investigative agency, Which were dealing with PPI claims late 2010, early 2011, At the time I had a Halifax bank account, but however the emphasis was based more on PPI claims, rather than punitive overdraft charges, To the present I have not been successful in retrieving anything back, in terms of what I felt was excessive overdraft charges, To which I had no choice but to close that bank account, They even had the blatant cheek to refer me to credit agencies for bad credit.

Avoid Barclays bank at all cost, I was sent a pre approved loan via the Barclays app, accepted and had funds in my account within 5 minutes. What they dont want to tell you is the interest rate has nothing to do with their standard published rate but what they think they can fleece you for. My example, standard rate as of today 4.99% APR my rate 16.5% APY yes thats right Barclays are charging me 3 times their standard rate. My mistake, I should have researched but having banked with Barclays for years and simply coulnt belive didn’t beleive a respectable business could behave this way. Not much better than loan sharks!!!!!!

I have a joint SANTANDER personal account, with online banking.
I have also access to my son in laws Business Account, to view his Bank Statements only. I have separate log in details and passwords for this.
This morning my wife logged on using our personal details to view/download our eStatement. She discovered that she can access & view my son in laws Business Account Statement. She has never requested access. THIS IS A SERIOUS BREACH OF BANKING SECURITY.
I phoned Santander Business help line and spoke to Tina Trodden, I even emailed a Screen shot of my computer screen showing the two accounts, that are available in eStatements. I was promised a phone call back. This has not happened.
I am now very cross and angry that its now 23:23 and the situation is still the same, with no feedback.

[Sorry Colin, your comment has been edited to align with our Community Guidelines. Thanks, mods]

I have just recieved a phone call from SANTANDER who tell me it is a Known fault. That you can log into your personnel account and view my son in laws business account using eStatements.

Colin Greene says:
5 January 2017

I complained about high charges when using my debit card in EU. I discovered my Bank added three charges: a ‘non-sterling transaction fee’ 2.75%; a ‘non-sterling purchase fee’ £0.75; and then used a much lower exchange rate 8.513 rather than quoted ‘interbank rate’ at 11.746 (Nov/17 DKK-£).
The result was purchases below £10-15 were charged with fees of 30-24%.
Basically, it would have been cheaper to buy foreign currency at the airport than to pay 30% commission to my bank.
It seem grossly unfair to charge fees AND a non-competitive exchange rate – that just being greedy.
I now use a Metro card for all EU trips – no charges at all.

Am highly disappointed with Barclays…it was only by chance that I had to go into a branch to deal with an over the counter request that I was told about ‘Blue Rewards’ and that I was entitled to the benefits due to the eligible status of my account. After later checking the details on-line I have missed out over six months of rewards because I was not previously advised of the benefits of joining.

I have had my mortgage with them for years and just did a further loan with know mention from the advisor that the mortgage entitles me to claim on the Blue Rewards scheme so, I have missed out on benefits from my mortgage, purchases and my current account status.

I called Barclays to complain and told it was my own fault for not making use of the online benefit.
I replied by asking how was I supposed to claim for a benefit that I did not know was available and that the bank are quick to highlight eligibility for a loans or credit cards but nothing about the Blue Rewards, to which she agreed that no notes/notice/updates had been issued regarding the Rewards scheme but, it was still my own fault for not checking the app.

Small Business banking is a rip off. When you open an account you are given a maximum cash allowance you are allowed to bank per month. As in my case this was 15 years ago, prices do increase and therefore the sum you were allowed, that many years ago does increase. In the case of the banks this limit can not be exceeded and therefore anything over the original amount is charged as ‘cash over maximum’ at 75p per £100. The bank charges the company for putting its money into their bank, and as prices rise this cost increases. This is a practice that is a total rip off and requires investigation.

Alan Smith says:
5 February 2017

I have long wondered why cash ISAs are considered so favourably for lower rate tax payers since the rates are invariably lower than those on ordinary fixed rate accounts. I used to give the banks the benefit of the doubt and supposed that perhaps they incurred extra, perhaps onerous costs through having to deal differently with HMRC when it came to ISAs but given that tax is now not deducted on any account by the bank why is it that the best buy tables show 5 year fixed rate bonds paying above 2% whilst the best 5 year fixed cash ISA’s are all around 1.5%? Just who is it that benefits from the tax relief on ISAs?

I presume cash ISAs were OK when interest rates were higher and the tax incentive better. I think they have had their day. On the other hand, a stocks and shares ISA is more attractive, in my opinion. Not only are dividends tax free but so is capital growth. Over the years our fairly modest investments have been gradually transferred into iSAs for these reasons. I’d put cah into premium bonds – capital is safe, prizes free of tax and you never know if you’ll strike lucky. Not a lot to lose.

Since the introduction of the £1,000 Personal Savings Allowance in April 2016 the case for cash ISA’s is weak but I agree that stocks & shares ISA’s are worthwhile if held over time so that they accumulate and tax advantages accrue. The time to have invested in the stock market was before the EU referendum but it could still outperform other types of savings and investments over the medium term, and over a long term is more likely to. A lot depends on the stock selections of the investment managers. Cash investments are liquid but that advantage comes at a cost in the yields.

banks and other credit card firms should be the same as marbles if you go over your limit they charge you £12 but if you bring your account inside the limit with in 7 days they refund that £12 to your account on your next statement

A good idea, providing it is not regularly abused. There is a new Convo on overdraft charges at https://conversation.which.co.uk/money/banking-overdrafts-unarranged-fca-cma-rachel-reeves/#
My banks and credit card companies have refunded charges that were made when I very rarely made a late payment of drifted into a small overdraft. I wrote to explain what had happened.

Those who do not arrange overdrafts have an option. Those who do arrange overdrafts are the ones who need more urgent help from the FCA and Which?

I don’t use my overdrafts but am reminded by a letter from one bank today of a gross iniquity. Go overdrawn and they charge a fixed daily fee of £0.75 (that’s 15 shillings in real money). So on £1000 that is a fairly tolerable 27.4%. But on £100, an expensive 274%. And if you happen to just slip into the red by £10 – an extortionate 2737.5%.
What I’d like to see Which? and the FCA focus on is to make this a fair charge. By all means charge 27.4% but apply this across the board – drop the 75p a day charge.

Hello, some of you may be interested to know that today the Financial Conduct Authority has published its feedback statement and report into high-cost credit. In its report it has warned that it will continue to review unarranged overdrafts having acknowledged that the fees can be as high as those of payday loans, which are capped. The regulator has also extended the payday loan cap for a further three years.

Which? money expert, Gareth Shaw, said:

‘Significant concerns about unarranged overdraft charges are not new, Which? previously found that the unarranged overdraft fees could cost considerably more than payday loan charges. The FCA’s own research now backs this up, and it must act swiftly to crack down on these exorbitant fees and to restrict unarranged overdraft charges to the same level as for arranged overdrafts, as further delay will only cost consumers.’

@ldeitz Lauren – Please could Which? look into the fact that those of us who manage to stay in credit – even by a small amount – enjoy free banking services, no doubt paid for by those who are charged high interest rates by being in debt.

Hi Wavechange – I can certainly see what policy work we’ve done on this so far. I’m not sure how easy it would be for us to identify how banks fund free banking services though (unless any are upfront about where their income comes from and where it’s distributed), we could speculate but that wouldn’t be particularly fair.

I’ll see if we have any clearer details for you.

Aha! An answer quicker than initially expected 🙂

So the CMA did look at this question and found that while there is some degree of cross-subsidisation between unarranged overdraft users and free banking, the most profitable customers were actually those with high credit balances.

The below is from paragraphs 42-44 from the CMA’s summary of its report (https://assets.publishing.service.gov.uk/media/57a8c0fb40f0b608a7000002/summary-of-final-report-retail-banking-investigation.pdf):

‘the total average revenue per PCA to the bank in 2014 was approximately £177 per year including interest forgone…

Around half of the revenue that banks earn from supplying PCAs comes from interest the bank earns by lending out customers’ credit balances (value of funds) rather than from direct charges. Approximately a third of bank revenues comes from overdraft charges. Banks derive higher revenues from customers on higher incomes with high credit balances, with revenues from customers with no overdrafts and low credit balances being the lowest.’

Thanks very much, Lauren. I am not keen that those with overdrafts are contributing to the costs of my free banking services. I can cope with being subsidised by those who have large incomes or have high credit balances in their accounts.

So the wealthy are helping support the poor ( 🙂 ). It is useful to have these facts Lauren. In past debates it has been suggested that the unarranged overdraft user supports those with free accounts. It seems that only a third of the revenue comes from overdraft charges which will no doubt involve a large proportion from those who arrange a facility and pay the regular charges.

I wish this sort of information were published when a Convo begins, in the introduction. Misunderstandings, ire, might be avoided (to some extent anyway). I do feel an intro should offer an informed, balanced and fair picture with both sides properly presented, otherwise passions can be unnecessarily aroused.

The fact that the poor are having to contribute to the cost of people like me who keep their account in credit is wrong. The wealthy might not miss ten or a hundred pounds but if you have nothing in your bank account then overdraft charges could help you into a downward spiral of debt.

This seems to treat the banks as an official means of the redistribution of wealth from the well off to the poor. They are not; the State is.

It also assumes those in credit are wealthy (I am, and I am not) and that those with nothing in their account are all either poor . Some will be, but maybe someone can provide facts to justify the assumption. Do we know what other assets they may have? Do we know how they spend their money and whether they spend it wisely? Before we dispense support we need to know the recipient is genuinely in need and not acting irresponsibly.

However, perhaps banks should give each customer the option of donating part of their assets to support those customers in real need; I’d like to be given that choice.

What I have suggested is that overdraft charges should not be used to support those of us who are in credit. I support the campaign by Which? to end high interest charges.

What do you do with the charges then? They go into the overall income pot for the bank just like other charges, investment income etc to fund the bank’s activities. Those in credit provide over half the banks’ income apparently so I’d suggest they are not only not supported by the rest, but heavy contributors.

Surely the question is the scale of the charges? My bank charges me 50p a day if I use my overdraft. So not related to the size of the borrowing (up to my limit). I would prefer to have an AER applied, or 50p a day, whichever is the lesser. Otherwise fees can be disproportionate. However, overdrafts should be used for very short term borrowing – a mismatch in dates between outgoings and income occasionally, for example. I would have thought for longer term or regular borrowing a personal loan would be better and cheaper.

As I have suggested before, I believe that those in credit should pay for the services they use. At present I have nineteen direct debits, payable anything from monthly to annually and for amounts between 79p and whatever my credit card bill amounts to that month. I use ATMs, online banking, a debit card and even the odd cheque. The bank handles a variety of credits automatically. I suggest that I should pay for these services but the cost be offset by interest on the credit balance, which varies considerably for me.

Surely all should pay for the services they use, if that were the proposal, whether in credit or not. Complicated to assess your annual cost/credit and decide whether you were with the right bank.If those in credit do provide half the banks income then we are paying for the services we use – it is just averaged out/spread around. Do we want complex charging or simple charging? I suspect like energy bills we would complain that people do not switch to the best accounts and providers that would suit them.

But the banks have repeatedly argued that they make no money at all from domestic customers. They have always argued it all comes from commercial customers and futures / exchanges.

At the moment we have the CMA report on retail banking to help us. Para 44 says:
round half of the revenue that banks earn from supplying PCAs comes from interest the bank earns by lending out customers’ credit balances (value of funds) rather than from direct charges. Approximately a third of bank revenues comes from overdraft charges. Banks derive higher revenues from
customers on higher incomes with high credit balances, with revenues from customers with no overdrafts and low credit balances being the lowest.

PCA = personal credit account.

On 1st Aug 1438 Malcolm said: So the wealthy are helping support the poor ( 🙂 ). It is useful to have these facts Lauren. In past debates it has been suggested that the unarranged overdraft user supports those with free accounts. It seems that only a third of the revenue comes from overdraft charges which will no doubt involve a large proportion from those who arrange a facility and pay the regular charges.

That’s not the entire picture. Far from it, I suspect. The terms of reference only included Personal Current Accounts and not all the other banking accounts and facilities available, and Small and Medium Enterprises. The report also admits (para 48) price comparisons between PCAs are not straightforward so the figures shown are only approximate. The banks will know them but won’t want the public to know. That’s reinforced in para 70 iii, where the report states In addition to being complex, banks’ pricing structures lack transparency.

But the report bears more scrutiny. Let’s consider what they say:

Banks derive higher revenues from customers on higher incomes with high credit balances, with revenues from customers with no overdrafts and low credit balances being the lowest.

That’s not the wealthy subsidising the poor, any more than I’m paying for the Army and Navy with the tax I pay. I might object to keeping the Aircraft carrier afloat single handed (which is how it feels) but I know that this is part and parcel of a just society. My income is significantly higher than that of a 23 year old working in a hotel and I fully accept that in a just society the well-off must make greater contributions to that society. The point is that even with a greater contribution there’s very little I want that I can’t buy.

If we translate that to what the banks are doing, however, we see a slightly different slant. The simple fact is that they make a lot of profit from those who can most afford it. Those who can least afford it are the most likely to have problems, and they’re the ones I fully expect the banks to be more considerate towards.

The banks also enjoy a monopoly: the four largest banks in GB account for over 70% of main PCAs and collectively have lost less than 5% market share since 2005. So they’re coping very nicely, while the young people, to whom every penny counts, are being hit with charges that exceed those of Payday loans.

So yes;, I continue to support the excellent campaign to remove UOD charges and force the banks to become more transparent.

.

We are, I thought , discussing retail banking and it does appear from the CMA report that it is the wealthy are contributing the most to banks income.
I actually said “support” above, not “subsidise”, in response to contributions that suggested the poor were, through high charges on unauthorised borrowing,, subsidising the rest. It seems not to be the case.

Be that as it may, I would like banks to require customers to arrange overdraft facilities if they want to borrow money, otherwise don’t let them go into the red unless under exceptional conditions. I would like a better charging system than daily charges irrespective of the amount overdrawn (to the limit of course). I do not expect to see individual banks being transparent about their income and revenues as they are commercial organisations and have a right to keep their business models private, like any other commercial operation. However providing there is no collusion competition should show who are the better banks to deal with for particular customer needs. Which? can no doubt help us with that analysis, or a comparison site (maybe Which? could add one?).

I have no problem with my banks. One is a major player, the other a mutual. I know what I am expected to pay if I get into debt with them, and they conduct my service to my satisfaction.

The CMA’s report contains many interesting observations, for example:

“(b) Overdraft users generally have limited awareness of and engagement with their overdraft usage. For example, over half of overdraft users we surveyed underestimated their usage by two or more months in a year and over a third were not aware that they had gone into overdraft. Moreover, around half of unarranged overdraft users did not believe they had gone into unarranged overdraft.

(c) There are additional barriers to switching for overdraft users due to uncertainty surrounding the acceptance and timing of any overdraft approval when opening a new account. In addition, a new bank may not be willing to offer the same level of overdraft facility as a customer’s bank, for example because the new bank will not have access to the customer’s transaction data but will need to rely on information from the customer and from CRAs.

73. We also found that unarranged overdraft users are likely to find it hardest to effectively engage with the market. Around half of unarranged overdraft users were not aware that they had gone into an unarranged overdraft. Low engagement by unarranged overdraft users is of particular concern because unarranged overdraft usage is not pre-agreed with the bank and in many cases may be inadvertent. Such usage also involves a significant increase in charges. Some customers may therefore not want to use unarranged overdrafts and would avoid doing so if they had greater awareness of their overdraft usage.”

This is hardly surprising and reminiscent of the problems that many have with energy suppliers.

Seems to me that their lack of awareness is something they need to sort out. Keeping track of their finances would be a good first step – a cash book and a biro would work. If they give their mobile number to their bank they can be informed if they are likely to go into overdraft, to counteract the inadvertency.

Life is a hard journey – school, college, maybe university, job, learning to become independent and live on your own finances…… We all have to meet it head on – with help from friends and family and learning. Much easier now to get information than when I was young – no smart phones, computers, internet in those days. Taking responsibility for your own life, and then maybe a new family’s, needs application.

Malcolm, I’m sure you’re the very model of steadfast thrift, and that your unremitting triumph over the tribulations of life is worthy of a feature film in itself. But you’re making a mistake when you say

Much easier now to get information than when I was young – no smart phones, computers, internet in those days.

I know, from having put our two through University, that things have become much worse, and information much harder to find than it was when they first entered HE. There’s been quite a sharp change in Banking practice, of which I suspect you may well be unaware.

However, to deal with your earlier post, when you stated We are, I thought , discussing retail banking you’re correct. I’m not sure why you might have thought otherwise, but you’re still failing or refusing to see that banks penalise those least able to afford it. Charging me £120, say, for an UOD wouldn’t make a difference but charging a young person, trying their best to live within their means, hits them disproportionately hard. Do you not see that?

…contributions that suggested the poor were, through high charges on unauthorised borrowing, subsidising the rest. It seems not to be the case. Of course it’s the case. Look at the figures. The banks make excessive profits on UOD charges, and they make them on the backs of those least able to afford them. This is Dickensian economics. Scrooge would have been delighted.

In terms of allowing folk to exceed their agreed OD you say don’t let them go into the red unless under exceptional conditions. I’m curious: how do you define ‘exceptional circumstances’? Because that’s a crucial part of the argument, surely?

But then you state I do not expect to see individual banks being transparent about their income and revenues

but that’s not what the report says. It states, clearly, that In addition to being complex, banks’ pricing structures lack transparency. D’you not expect them to be transparent about their pricing structures?

But I was surprised to hear that I have no problem with my banks. One is a major player. Really? Because when I apologised for having thought you were with Lloyds and John corrected me to say that you and he used a Mutual I noticed you didn’t act to correct the omission that in fact you also use a “major player” in the banking world. How interesting. Care to share which one?

Malcolm has mentioned that he uses Nationwide.

You have your views, I have expressed mine.

Wave: yes, he has, and I apologised to him when I assumed he used Lloyd’s. However, it now transpires he uses a ‘Major player’ as well (One is a major player, the other a mutual) Since Nationwide is a mutual I was merely wondering what the other was, since he clearly believes it to be a ‘nice’ bank.

I’d missed that, Ian. Sorry.

I’m with Natwest since it took over the District Bank and have they have proved more reliable than any other large organisation I have had dealings with, sometimes correcting small errors to my benefit without my intervention. I have my doubts that they would be a nice bank if I was in debt. 🙁

I am very glad that Which? continues to push for an end to punitive interest charges and it is worrying that large businesses seem increasingly difficult to keep under control.

I do not agree with exorbitant fees, but unarranged overdrafts should either be stopped, as Barclays have done, or some additional charge made for borrowed money taken that might, for example, not be repaid. It is quite wrong, in my view, when those who ask their bank to agree to make money available by way of an arranged overdraft facility are charged just as much as those who do not. What is the objection to making customers apply for an overdraft facility if they might need to, temporarily, borrow the bank’s money?

But the issues is about those who can’t avoid exceeding their agreed overdraft limit. And I sense we’ve trodden this path many, many times before.

Then ask the bank for an emergency additional overdraft. My question is why do we not advise people to discuss arranging an overdraft with their bank.

But with some young folks’ employment situations they’d be asking for an emergency overdraft every week, but the banks – having caused the financial crisis – have become nervous, so curtail overdrafts for those that most need them. It’s a vicious circle, and the banks are only too happy to profit from the problems the young suffer.

Why should the wealthy get massive overdrafts that cost almost nothing, yet those starting out and working as hard as they can suffer because of the banks’ own criminal negligence in the first place?

If your overdraft need continually grows, then your account outgoings exceed your income.
Should the banks make up that shortfall that may not be repaid?

The “wealthy” (really anyone who earns more than they spend) will get overdrafts because their financial record shows they are likely to repay.

But I’m talking about people who earn enough to cover their outgoings, but simply don’t get their income as predictably as they need. In those instances the banks should be reasonable – and not extortionate.

If they can demonstrate this to their bank then surely arranging an overdraft facility to tide them over mis-matches is the sensible thing to do? The basic question I have is why do we not urge people to ask for a facility, allow the bank to examine their suitability, rather than focusing only on charges? The banks are responsible for allowing unarranged withdrawals, but maybe there are some advantages to the client in that it might maintain vital payments, such as car insurance? But, I think maybe the best way is to only offer arranged overdrafts, with an emergency service as well, otherwise no one to go overdrawn. Find another way to fund your spending.

You’re assuming the banks are reasonable. But the CMA report states their charges are not transparent. And when you say “Find another way to fund your spending” that doesn’t allow for the situation of people who earn enough to cover their outgoings, but simply don’t get their income as predictably as they need. They are earning enough – just not getting it as regularly as their standing orders operate.

When you say “why do we not urge people to ask for a facility, allow the bank to examine their suitability, rather than focusing only on charges?” there are two points: the first is that I;m not clear about who ‘we’ are. D’you mean Which? Because if you do then I’d argue that’s not their prime remit.

The other point is that you’re making the assumption that most UOD users haven’t asked for a facility and allowed the bank to examine their suitability. I’m talking specifically about those who have an agreed overdraft limit but one which doesn’t fit with irregular wage payments. In that instance Which? is totally right in challenging the extortionate licensed banditry that the banks operate.

My banks publish their charges for both arranged and unarranged overdrafts on every statement. What is not transparent? Do other banks not do this?

“We” – Which? wrote the intro but do not advise customers to arrange a facility as part of their case. I think they should. I think banks should. I think we should with people we might advise, like children. I don’t care who “we” is really – it was the principle I was proposing.

I have not assumed all unarranged overdraft users have not asked. I was particularly concerned, however, with those who have not bothered.

If you now discuss those who are allowed an overdraft but need more, then they should take their request and their case to the bank, as I suggested earlier. The bank does not have a crystal ball. Banks offer a text service to advise customers if they are going overdrawn. That should alert the customer to remedy their account or to contact their bank to see if another arrangement can be made. It is surely the customer’s responsibility to keep track of the finances – income and spending – and to know when they might have a problem that needs resolving.

The level of fees / charges are quite separate and I’ve given my view elsewhere.

Malcolm: when you ask My banks publish their charges for both arranged and unarranged overdrafts on every statement. What is not transparent? Do other banks not do this? it would seem not, according to the CMA report.

But when you state that Which? wrote the intro but do not advise customers to arrange a facility as part of their case. I think they should. I think banks should. I think we should with people we might advise, like children. I don’t care who “we” is really – it was the principle I was proposing. I suspect your perception of Which?’s central mission is perhaps a little unclear.

Which? exists to protect the consumer. The most effective way of doing that within its means is to illuminate those practises where the consumers are being given a bad deal. It acts to highlight where big business takes advantage of consumers. It does not, and never has, purported to be an educational institution, despite the fact that its research and expertise does serve to educate on many occasions. Its primary role is to protect the consumer.

But if it was not Which? to whom you were specifically referring, why mention it at all? And why mention it repeatedly, as though it was some deficiency in the Which? offering? And you’re still assuming that only those who don’t actually ask for an OD facility are those who are being charged. I think that’s another misapprehension, because I suspect (but don’t know for sure, since the banks are not that transparent) that it]s those who inadvertently exceed their OD, not simply those who never bother arranging one.

But finally, you say they should take their request and their case to the bank as I’ve also noted repeatedly the banks often place a cap on ODs which actively and unfairly target those with multiple jobs, zero-hours contracts and erratic wage payments.

These are not the wealthy in society and Which? has little to gain, since they won’t be able to afford a W? subscription, so I believe it’s very commendable tgat W? continue to pursue the banks over this appalling tactic.

It will be interesting to see how the Barclays policy works out in practice, and how the Lloyds policy develops. To my mind the Barclays policy will see more intervention by the bank in customers’ financial management and there seems to be a strong likelihood that numerous customers will see their accounts frozen – and not necessarily at a convenient moment. Cheques bounced, direct debits returned, and standing orders unpaid could all lead to serious consequences.

I presume Barclays have warned their customers – or at least those in the danger zone – that things will get difficult. Some, I suppose, will be able to rearrange their affairs so that they are not affected but others could be left in debt as well as in default to various payees – from which dire consequences could ensue.

Unless I have missed something, the Lloyds policy seems to be just a harmonisation of the terms for overdrawing, although I cannot believe there will not be an attempt to rein in those customers who are permanently on or near the edge; indeed it is almost imperative that the bank does that to protect the remainder of their customers.

At the moment there are alternative banks that have not changed their policy on overdrafts, but that could change under pressure from the FCA . Where will customers whose income and expenditure profiles are not synchronised go then, and what will be the consequences? I expect the banks attitude is that they have provided a financial cushion for customers by adding a pre-authorised automatic overdraft facility of a few hundred pounds to everyone’s account for the very purpose of giving some wriggle-room as Ian explains.

The problem is that many customers have hit the ceiling on that and are staying there as well. Although the interest rate is lower it is another useful source of income for the banks and I have found myself there for a day or two on a couple of occasions due to my inattention – it only cost a few pence and I quickly regularised my position because it offends me to pay interest for any reason! I do not know (a) whether every customer gets the benefit of such additional provision, or (b) if they do, whether all get the same allowance. For some customers there probably is no hard shoulder they can run onto when their account runs out of fuel and they might not be eligible for an arranged overdraft either. If the banks pull in all the unarranged overdrafts there could be considerable distress. I am sure that’s not in the national interest. I would far rather see unarranged overdrafts available at a reasonable and non-punitive rate of interest coupled with measures to assist the customer to progressively move into the black and with sensitive support, even to the extent of trying to reschedule the customers’ payments in order to smooth out the income/expenditure imbalance. The Bank of England gave the banks some quantitative easing; now it’s time for the banks to give their customers some as well – so long as it is done prudently and with repayment in mind.

Many customers do not have this ‘cushion/hard shoulder’, I certainly didn’t, however if you call the bank and explain they may refund you the charge, however there are many, many instances like Stephen Cross’s below, small payment returned an charge largely inappropriate and you still need to make the initial payment, which you often do not realise that has been missed, until several days/a week later, by which time you have probably got another charge because the company has reapplied for the DD again…

For going over your agreed limit I think the banks should charge a reasonable fee, especially if you have your money paid directly into the bank – they know it’s going to get the account recharged in a day or so.
I went £20 over and was charged £38 plus a regular payment of £22 was declined due to insufficient funds.