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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?

Peter Stubbings says:
2 August 2017

I have a Santander account which I barely use with no overdraft facility,it is an online account and the only time I let it go into overdraft without realising it only by about £10-15,Santander applied charges for about 3 weeks before deciding to inform me,when I complained that they may be could have told me earlier they said it was not for them to tell me and that I should make more effort to look after the account.It cost me about £120 in charges, I now get them to tell me when I have less than £50 in the account.

Paul Griffiths says:
2 August 2017

I would have taken my custom elsewhere if Santander had done that to me. The founders of the Abbey National Building Society and its forebears would be turning in their graves…

Wendy Dono says:
2 August 2017

I would like my bank to stop trying to force me to do computer banking. I prefer telephone banking. I feel they do not have enough safety checks in place regarding online banking. I have heard a few horror stories where customers are not reimbursed.

I totally agree, I was scammed over one weekend, once on the Friday night and once on the next day Saturday, I did not notice until Monday when I went to pay money in, I did get the money back but the bank said they could not tell me who had stolen the money from my account even though the money had been transferred to another bank account in Bank of Scotland, so they traced where it went but said they were not allowed to disclose who the account belonged to because of data protection. Where was my protection, and now our local Lloyds bank has closed and I have 1 hour on a Monday to pay in cash to my account on a mobile bank van which for the last 3 weeks cannot give me a total of my account as the system is down, they want me to look on line, or use telephone banking, sorry I am not risking using either on line banking or telephone banking, they have made enough money out of me through the years the least they can do is supply a local branch that can trust to give me reliable safe banking. I am 67 years old and shouldn’t be made to change my banking habits to make them more profit.

Banks should also be checking recipient name/identity, as well as sort code & account number, for online transfers – as they used to (or were supposed to) on cheques. I have not (yet) been “stung”, but I know of people who have and the sums involved are often far more than overdraft charges.

Dave, something that seems not as simple as it sounds but is being currently investigated.

I have for some time failed to understand why credit card interest rates are so high, especially as banks offer such low rates on loans and the BOE has been so generous to them. I believe credit card debt should be frozen and new spending interest rates set at a more realistic rate.

I always thought that the function of bamks was to lend money at reasonable interest rates. However when I recently went to get a bridging loan for £250,000 for a few weeks, to enable me to buy a smaller house before I had sold my larger one, the most they would lend me was £25,000! Apart from the equity of something like £750,000 in the 2 properties, I had other assests of £50,000 and had been a customer of the same bank for some 60 years. This made no difference to the bank, who quite frankly didn’t want to know about my problem! I felt I was being treated like someone who had just walked in off the street and not as the ‘valued customer’ they claimed I was! It doesn’t surprise me that they rip off customers with this attitude, but not me I hasten to add, as I never go overdrawn!

Roy Gissop says:
2 August 2017

I wish banks would stop replacing staff by machines. My local branch of Barclays has no counters – just machines, while the staff hover about with ipads, offering to help. They would be better sitting behind a counter

I agree with ET’s failing to understand why credit card rates are so [unjustifiably] high.

As LPA for Alzheime’d husband ,I persist in requesting no overdraft.We incur the odd fine every month as his needs and mine must be met on Pension Credit.Bills are paid.. Good but often there is nothing for leisure.

John Simeons says:
2 August 2017

An unauhorised overdraft is taking your banks money without asking. How would you like me taking your money..

I’m with HSBC and they send me a text alert if I’m likely to go overdrawn which gives me time to credit my account and avoid any charges. If your bank doesn’t offer this feature then I would move to a bank that does. If we vote with our feet (and wallets) then they will have to change.

When a bank agrees a repayment system over the phone (Lloyds TSB at the time) they should stick to it. I had a 400 pound overdraft, I had just left my husband and moved in to a house that meant my rent was taken directly out of my pay, (local government employer) they obviously thought that my wages had gone down (which they hadn’t). I agreed to pay it back a 100 pound per month which I could manage, pay day they took the whole amount, what I had left after deductions for the month. I rang them up to ask what had happened to the agreed arrangement, and they just weren’t interested, they had my money and didn’t care how I was going to feed myself for the month, I immediately transferred the account my wages were being paid into. I should have complained to the ombudsman, but then I had over things to worry about. This was over 20 years ago, but the principle still applies and I still remember the utter, heartless betrayal I felt of them kicking somebody when they were in a difficult position.

Did you not get a written confirmation of the agreement you had with the bank, Ms Harris? I think that is essential and I assumed it was obligatory. That would have removed any room on the banks’ part for treating you unfairly.

Banks have been getting away with low interest on savings for years, it’s time they shared some of the money they make with the savers, who’s money they lend at am much higher rate.

in the days when there was a bank manager you could discuss your financial affairs with rather than an algorithm credit scoring, it was much easier to obtain a loan as both parties knew the circumstances and could arrange flexible terms. now there are effectively two loans markets, of banks and payday lenders charging exorbitant interest. i’m not even sure if that level of interest is legal under the terms of the various consumer credit acts, but there doesn’t seem to be any halfway house where one can obtain credit at a reasonable rate. (i don’t use credit cards so perhaps slightly blind to that market). either way you always feel like you are being totally stiffed by the industry who view their customers purely in terms of what they can get out of them. this doesn’t benefit anyone in the long run. why can’t there be a fair market for credit?

Because Banks,Lenders and Insurance companies can’t be relied upon to “do the right thing ” then The Bank of England should implement a scale of fair charges and interest rates that all banks and lenders have to abide to. The interest rates could be scaled to credit ratings with an upper cap for all.

I wish the banks would stop trying to make everyone do on line banking and punishing those of us who do not trust the systems they operate.The appalling things that have happened to on line accounts should make everyone think twice before being cajoled to sign up for this.

They ought to think more before closing local branches.Older people need these branches,but banks think about profit only!

Helen Turner says:
2 August 2017

Like many people I am fed up with being asked to do my banking on line. Don’t trust it. I like to be able to speak to someone about my transactions. It’s time the banks listen. All they want to do is make their staff redundant for profits.

since we put our monies into the bank,s and they make money for them selves banking must be FREE there should be NO charge,s at all.

Something I would like banks to do is to prosecute those who steal money by fraudulently using credit cards online, instead of refusing to report such crimes – even when they know the full details of the criminal involved. Merchants also refuse to reveal the identity of those who commit credit card fraud because of “data protection” considerations for the criminal involved, never mind that it was *my* data, and *my* money, which was stolen!

What is the point of banking when the Bank of England sets the base rate so low that banks no longer need to encourage investors to save by setting interest rates anywhere near the inflation rate? Banks no longer need savers’ money when they can get unlimited funds far more cheaply from the Bank of England! The retail banking model is broken.