/ 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?


A large part of the problem is that there is far too much borrowing going on in the first place. If the banks don’t make their money with unarranged overdraft interest, we’re all going to pay in some other way. The real problem is rooted in the Bank of England’s refusal to put up the Base Rate thereby destroying the incentive for people to save. The average household unsecured debt now runs at over £13,000 which is a very sad reflection on our spendthrift society, largely due to the banks’ continued encouragement to us to borrow and live beyond our means. All of course being allowed to happen by successive governments.

I have had the misfortune to deal with the Financial Ombudsman. It was a protracted, unpleasant and incredibly frustrating experience. Openness and transparency in the banking industry will never be successful when indeed the so called “watch dogs” of the banking industry act like this: when making a complaint to the FSA, you are not even told if they will take any action against the bank you are complaining about, nor even tell you the outcome of the investigation made by the FSA if indeed any investigation was made at all! And just to add insult to injury they even explain to you how frustrating this must be. You couldn’t make it up!

I wish banks would recognise the problems they are creating for older customers with memory decline. My dad forgets or misplaces his bank card a lot. The bank staff know his name, but still insist on going through this routine of asking him a series of security questions he can’t answer. He misses the old days when a signature was enough. Time banks got fingerprint scanners.

Paul says:
2 August 2017

There is no such thing as an unauthorised overdraft really is there? The banks choose to make the payment which takes you overdrawn and hence ‘authorise’ payment. They should simply reject payments that would take the account into the red. There is an invisible limit to which they do this – I dare say if you wrote a cheque for £1,000,000 they wouldn’t simply let you go overdrawn! It is a mechanism by which banks charge fees to make profits. Every payment the make from your account is inherently ‘authorised’. Another scam by the banks, all of whom have been prosecuted for numerous financial crimes over the years. This is just another aspect of their criminality. Just look at the fines they’ve been landed with over the years.

Not everyone agrees, Paul, but I see unauthorised overdrafts as a service provided by banks.

I suspect that some customers use authorised overdrafts as an incentive to go overdrawn. My current account shows ‘Balance’ and ‘Available’, the latter figure being approximately £2000 higher. I cannot remember whether I requested an authorised overdraft or whether I was informed about it but in these days the amount was a more reasonable £200. I have not used it and not asked for the amount to be increased. Likewise, my credit card company keeps pushing up my credit limit. I cannot afford to pay interest charges, so I’m very careful to keep a mental note of what I spend and check my account if in any doubt.

Correctly, they are arranged and unarranged, not authorised and unauthorised – at least on my bank’s literature. So if you ask your bank and they agree, you have an arrangement. That does not stop the bank from releasing money to someone who has not made an arrangement – they have authorised that payment as you say.

I do not agree with excessive fees, but do think we need to make people responsible for tracking their money. If your income equals or exceeds your expenditure, you’ll stay afloat but, if you do go into the red you will incur charges that may make it difficult to get back on track. So it is important to know when your outgoings and your income happen to try to avoid this. If you are likely to go overdrawn it is far better to arrange it with your bank.This just seems common sense.

An overdraft should be about tiding over a mismatch between the timing of income and expenditure, not a means of having “extra” money. One argument is about people who have already used their existing overdraft and then go into a further “unarranged” overdraft. How they are hit by the charges. Well, if they are unable to pay off their arranged overdraft then it would seem they are living beyond their means. Lending them even more money is not really helping them. Back to organising their finances properly.

We should aim to save an amount that stays in our account and ensures it covers the ups and downs. Then we could avoid overdrafts altogether. I regret that I may seem to have a blunt attitude towards this, but I was brought up with little money and taught to save for what I needed, and wait until I could afford it. The exceptions are of course houses and essential major capital items. I bought my first car with a loan, but my Dad quizzed me in some depth on my income and spending before acting as guarantor.

Paul the problem with the banks refusing to pay standing orders is that the recipient that gets the payment refused then charges the account of the person who should have paid it, the bank then also send you a letter saying that they have refused to pay it and charge you for sending you the letter telling you that they have not paid your bill, this all adds up and usually for people who can not afford to be extravigant in the first place, with Friends like these who needs enemies.

wavechange you seem fortunate, to be in a position of not going overdrawn, but not everyone is as fortunate all of the time.

But if you don’t have sufficient funds to pay your standing order why should the bank pay it? And if it costs money to process the non payment, and if the bank has to inform you by post, why should the customer not expect to pay the costs? It is the customer who created the problem. This is why it is so important in my view to keep track of your money in your bank, to avoid getting into a situation like you describe. And if you think you might then see if you can arrange a bank overdraft facility.

Margaret – I am very fortunate, but I have been frugal throughout my adult life. I rarely employ tradesmen and until recently I did my own car servicing and repaired my own household goods wherever possible. My reason for contributing to this Conversation is that I am strongly opposed to high interest charges and think it is wrong that people like me enjoy free banking services partly paid for by those who have overdrafts.

Malcolm – You have given us many lectures about managing money, but were you not one of those suggesting that we should spend as much as possible when buying a house, in a fairly recent Conversation? The possibilities of unemployment, negative equity and having to move home makes that too much of a risk for my liking.

Being frugal can also mean being careful with what money you have. Maybe if more people used their money wisely, recognising it does not grow on trees and can only be spent once, we’d have fewer people in financial straits.

In the case of my banks, interest charges have been supplanted by a daily charge. So by however much you go overdrawn, up to your agreed limit, you’ll pay just the same. I am in two minds about this. On the one hand, if you overdraw very little, the charge can be seen as effectively a very high interest rate. But this is a little deceptive. Because on the other hand, the total charge is perhaps what matters most. 50p a day, hopefully rarely if ever used and for a very short time if you track your finances properly, is not going to break me.

I’m sorry you see my comments as lectures. They are not intended as such, just as my personal views and being as concise as possible.

Yes, I do believe that when you buy a house you should spend as much as you can afford, taking account of your other outgoings. I see that as managing your money. That is not at all the same as spending as much as possible. I believe they are a sound long term investment and a good way of getting an eventual return as well as being a very useful asset.

The key to all this is”what you can afford”. I bought my houses by going without many other nice-to-have things – holidays, new furniture, new cars, eating out…….. because I couldn’t afford them. You do have to make a judgement on job security, future interest rates, of course. But negative equity seems only a problem if you need to sell up; providing you can keep up the repayments it is not an issue. Long term value has always been increasing. But even if prices fall you are better off than paying much the same outlay in rent, with nothing to show for it.

Lecture ends here. How would you like me to rephrase this to be more user friendly? 🙂

Negative equity is a real problem for many: http://www.dailymail.co.uk/property/article-3553988/Homeowners-trapped-negative-equity-house-prices-stuck-2007-levels.html

I was listening to the radio last week and buying cars via PCP schemes is leaving an increasing number of people in debt.

Since you have invited me to comment, your posts often suggest to me that your way is the only way. It can’t be much fun for those who are in debt to read posts from people like us who have managed to keep out of debt.

I’m sure many of my posts will be seen as lectures, but I blame a career in education. 🙂

I tend to generally agree with Malcolm’s views on this topic.

When I’m lecturing, I do often say things like “there are two ways to tackle this problem – our company way – or the wrong way!” but I usually say that to caricature inflexible mindsets and/or learned helplessness.

I think we have to be very careful to avoid stereotypical characterisations of those who use overdrafts routinely, or those who sometimes – through no fault of their own – enter the dreaded world of the unauthorised overdraft. I don’t think it’s helpful to Which? or to those visiting this topic for the first time to see what could be perceived as smug, supercilious and cliché-riddled attitudes regarding cash management.

In particular the young struggle and I suspect they’re struggling now more than ever. The bank-induced credit squeeze, created (lest we forget) through the bank-induced financial crash has left a lot of young people trapped in a perpetual cycle of low wages, erratic payment dates and zero hours contracts, where wages are being kept at the bottom level, while rental, electric, transport, council tax, insurance, gas and food prices have risen steadily.

It’s all too easy to pontificate about money growing on trees, and imagine that all these youngsters are layabouts, smoking, drinking and enjoying hedonistic lifestyles but the grim reality is very far from that. On top of all the stress of attempting to survive day to day, when the banks then levy extortionate charges for unavoidably exceeding what are very often minimal overdraft facilities I fully expect organisations like Which? to throw their not inconsiderable weight behind a campaign to address the issue.

I don’t think there is much chance that Which? will give up on campaigning on punitive interest charges, Ian. I agree with what you say regarding perceptions of visitors to this site and wonder what would happen if we had a few Conversations where those with current or recent experience of financial problems were the only ones contributing.

Sadly, I suspect the age profile of visitors here would probably rule that out.

“smug, supercilious and cliché-riddled attitudes” “pontificate” are not comments likely to attract contributors who might feel they could be labelled as such for having views that someone disagrees with. A discussion is about exchanging views, where both sides have a say. But demeaning the messenger is inappropriate.

“layabouts, smoking, drinking and enjoying hedonistic…..” I don’t remember any contributor saying this.

I would not like to see contributors deterred who might have opposing views , particularly if they have some validity.

I suspect contributors will quickly realise that very few fall into that category Malcolm. But as I said, these comments could be perceived as such. It’s the repetitive lecturing mode that many dislike. Reminds them of school.

And you’re right when you state I don’t remember any contributor saying this. , except you need the limiter ‘exactly’ after it. No one’s said those precise words, but it has been implied, and implied very clearly. For instance, phrases like “Maybe if more people used their money wisely, recognising it does not grow on trees and can only be spent once, we’d have fewer people in financial straits” are indicative, I believe, of a certain mindset, one which assumes many people splurge (that’s the converse of using money ‘wisely’) and obviously don’t seem to understand that money doesn’t grow on trees. Unless you own an Orchard. Or vineyard.

But above all else, the issue is that this sentiment is continually clouding the issue Which? is attempting to elevate. The topic is about punitive charges by banks, and not a section out of the Good Housekeeping Guide or Micawber’s guide to Happiness.

I have made a point of suggesting how people can better look after their finances over a number of posts. Using software such as Which? recently reviewed (I use free MS Money under Win 10), keeping a paper record of spending and income, using spreadsheets to track income and spending, creating an annual budget……….Whatever is most convenient for you. That is how I have kept out of debt. Without doing that I might well have lost control of my finances. So rather than just making an empty comment I have tried to make a positive contribution.

It is not much fun to be in debt, so my view is we need to try to help them avoid that situation. But it is they who need to act to make things better. Others can only make suggestions.

In this Convo a question I have repeatedly posed is why do customers not ask for an overdraft facility, or ask to extend it when they see a problem arising.

On the last two points I’ve already explained that situations can exist which neither course is possible and the banks simply make money on that.

On the first point your suggestions are positive and welcomed by many, I’m sure. But I suspect you simply don’t comprehend that the principle of the punitive charges is wrong per se or that some – possibly many – are victims of circumstance and not choice.

You’re right in that there was a move towards living continuously in debt, a situation engineered through a combination of political dogma in the ’80s and big business, and that’s not good in general, but the points I’ve had to make in response are always the same: it’s the vulnerable and the poorest that are being hit the hardest and they often have no choice, because of the way society has developed since the bank-instigated financial crash. They’re not choosing to take zero-hours contracts with irregular wage payment dates: they have no choices.

Of course we should help them to stay afloat, but it’s extremely difficult for them, and Which? has a responsibility – which I applaud – to take on the banks in their interests.

This is in reply to Ian 11:20 as it is out of order in the sequence: If Which? believe any comments are out of place I’m sure they will inform and act.

The Convo has developed into areas other than charges, – into the reasons why people end up having to deal with charges in the first place. By all means deal with excessive charges; I have said I support this. But also try to deal with the root cause of the problem – which is trying to help people understand and control their finances.

I really don’t want to get into a discussion where comments are dissected to try to discredit or criticise any commenter whose views are disagreed with. Unless comments on all aspects of a topic are aired then the topic may not advance in a constructive way. Out of this topic one would hope some consensus might emerge on how to improve the way personal banking is conducted – by both parties.

I have not perceived that Malcolm has ever advocated punitive charges, or has not called for proportionate charging regimes for the different types of overdraft. ‘Punitive’ is an emotive word – to someone without any money, any charge is punitive.

I think there is a wider issue at stake here which justifies more social responsibility by the banks in helping people avoid debt, and recognition by the government that it is not in society’s interest to create the conditions in which crime, exploitation, begging and psychological breakdown will thrive. The government is responsible for setting the climate in which society functions and needs to become more sensitive to this. Looking after the ‘Just About Managing’ group should not be at the expense of the ‘Not Managing At All’ section of the community.

I agree with your first point, John, but it is the topic title and I believe the word ‘Punitive’ is very accurately used by Which? in this context. The charges levied are not fair, reasonable or a reflection of the actual cost to banks. They are intended to punish individuals who, some by no fault of their own, end up in a parlous situation.

Malcolm: No one is attempting to “discredit or criticise any commenter whose views are disagreed with” but unless strongly phrased and implied critiques of individuals whose financial position may well be beyond their control through no fault of their own are rebutted, then newcomers seeking advice and support may well receive the wrong impression.

As I’ve said, I have no issue with advice and suggestions, provided they’re positive and constructive and also provided they do not make assumptions of predetermined outcomes. This topic, however, should remain focussed on Which?’s main thrust – to eradicate punitive charges. If Which? launches a topic with the title of ‘How can you avoid incurring heavy bank charges’ then that will be the place to launch your advice and suggestions. But here, unless someone asks directly for advice, I think we should support Which? in what it’s trying to do, instead of always operating under an assumption that people only incur charges because they’re in some way at fault.

I absolutely agree, Ian. I don’t think anyone questions the value of money management, but there are many reasons why people get into debt. I want to see more social responsibility in companies, particularly those providing essential services.

Do you know what the costs are to the bank? This is exactly the information we need to evaluate the fairness or otherwise of the charges.

I have already said: “It is not easy for us, as members of the public, to know what charges are fair because we do not have access to the data held by the individual banks.” We are not in a position to make any useful input but I would like to support and encourage Which? to push the FCA to take action over punitive interest charges.

This topic, however, should remain focussed on Which?’s main thrust – to eradicate punitive charges.. It is for Which? to decide when a topic has departed too far from the heading. If they want to remove all comments related to advice on avoiding the charges, then that is their choice.

This Convo has not really progressed into suggesting what charges are fair; it is unlikely to, without input from others involved. It is fine to describe charges as “punitive”, but what should replace them?

My view, which I repeat, is that trying to help people to avoid paying such charges is surely a constructive part of a topic like this. Many Convos stray from the original narrow topic into other related and helpful territory. If you disagree with someone’s approach does denying their input help those who have financial problems? Below I’ve linked to Personal Finance Software which for some may be a great help in avoiding problems.

You seem to concentrate on a particular group of vulnerable people; for example ” They’re not choosing to take zero-hours contracts with irregular wage payment dates:” but their are others out their who will not be in this group who also need help.

Malcolm: I know the interbank lending rates, approximate costs per transaction and approximate costs of machinery involved, from which it’s possible to back-calculate a reasonable interest charge. Surprisingly, it seems to be somewhat less than normal arranged overdraft charges.

Then you might be in a position to propose the charges you think banks should be making, with the information to support that. Which? might then be able to go back to the CMA with firm proposals, and maybe ask the banking sector to respond. Are you intending to make your case here?

Ian has this information, it seems, so hopefully will make it known.

I’m pleased you note that I’m focussing “on a particular group of vulnerable people; for example ” They’re not choosing to take zero-hours contracts with irregular wage payment dates:”” You’re right: I don’t believe Which? should be in the business of assisting the group who – by inference – have plenty of cash and who don’t arrange overdrafts. I don’t know, of course, but I’d be very, very surprised if that group – the one with plenty of cash but who either doesn’t arrange an overdraft or who strays into the UOD territory frequently – does so out of choice.

But there may well be a group you feel does need sage advice, such as not spending more than they earn, keeping a paper record of spending and income, using spreadsheets to track income and spending, creating an annual budget. If so, I feel that there are other resources that could assist them, because that’s not what I feel Which? should be about.

Which? is about protecting the consumer and, although they’re not perfect, I suspect they’re by far and away the best we have. Protecting the vulnerable was a major plank of Young’s mission in the earliest days and I’m extremely glad Which? has continued in that tradition.

My point (and I believe Which?’s too) is that the banks are playing fast and loose and indulging in what is almost criminal behaviour which, by its very nature, almost always impacts the poorest members of our society the most. I find that completely unacceptable and whereas some might feel the poor might benefit from lessons in using spreadsheets I believe it’s Which?’s role to protect and represent the less powerful in society to achieve a just and reasonable situation, and not what currently prevails.

Much of what Which? does is to inform all sections of society. Whilst it does aim to make consumers as powerful as the organisations it deals with, it points us to good and bad products, services, holidays, personal finance software……………….Which? are in a good position to provide such information and wise advice. I think this is needed and where else do you find it? We do have Citizens Advice to help people in difficult situations as well, of course.

One of the original objects for which the association was established was “to promote in a manner beneficial to the community the improvement of the skills of horticulture and good housewifery”. I would suggest this sentiment might well include advice on how to look after your financial affairs.

Indeed, and Which? may well decide to run a topic on that very subject. I simply don’t believe this – or any connected to their campaign to put a stop to punitive charges – is it.

This continuing interchange seems quite out of place here. May I suggest that if it is to be perpetuated – I don’t think it warrants it however – that it should move to The Lobby. Perhaps if a Convo looks like drifting into more general territory someone could instigate a transfer to the Lobby and avoid the original Convo becoming clogged with less relevant discussions?

I quite agree it;s out of place here. However, transferring posts is more time consuming than you might imagine. As I’m only replying to points you make, if you wish to take it across there I’d be happy to continue responding.

We are all often replying to points others make. in some cases it blocks up the main Convo. I’d perhaps suggest the moderator moves the first clearly off-topic comment and then we can copy our own subsequent comments across, if there are any, if we want to. Alternatively perhaps one of the regulars could suggest the off-topic is moved.

This comment was removed at the request of the user

duncan, I have not suggested pulling any comments – quite the opposite. I am responding to suggestions about what to do when a convo goes significantly off topic (particularly if the off topic discussion might be protracted). It is suggested that off-topic discussion should then continue in The Lobby. That seems better than the Moderators simply removing the comments. Convos generate other issues that many want to pursue, and I for one think they are often worth pursuing.

Is there a war on cash? If it gets to the point that putting money into a bank actually costs you money, why not just take it out? At the moment, most savings are losing money (compared to inflation). But what if cash was banned, just to stop people from deserting the banks? Only electronic money was valid? In Cyprus, during the crisis, all bank accounts were first frozen, and then devalued by 47.5% (over a £85,000 limit). Since then, large denomination notes in many countries (India, ECB) have been withdrawn, just to stop people from withdrawing their savings from the banking system.

The changes to the bank note denominations in India were designed primarily to flush out the billions of Rupees that were concealed in personal hoards as a result of the secondary economy on which taxes had not been paid. People had to suddenly convert their old banknotes into the new values with a smaller top denomination and there was a limit to how much could be converted each day over a limited timescale. It caused panic and chaos but it was a successful operation in monetary policy terms. Large amounts of ‘savings’ were just lost because the government’s decision was sudden and caught people unawares, so there was not enough time for them to exchange their old banknotes which were then rendered worthless. Even those who turned up at the banks with bundles of notes had their names taken for further investigation. Just like the Spanish Inquisition, people didn’t expect it because it relied on secrecy and surprise.

Which by giving support to the idea that some banks are good have encouraged guilible people to think they will behave ethically.
The agreement you have with your bank allows the excessive charges you accepted the terms they will be used to pay large commissions and bonuses to those who claim to be thereto help. The mutual are not blameless and appear to have get rich quick people at the top.
It’s not about overdrafts it’s about a culture of greed and exploitation.
The financial services industry is not fit for purpose,they caused the crash and will do so again in pursuit of short term advantage.

Paul raised an interesting point. He said the banks “should simply reject payments that would take the account into the red. There is an invisible limit to which they do this . . .”I must admit this has puzzled me for some time because it is far from clear at which point they will stop a payment. and which sort of payment they will stop.

A couple of years ago I miscalculated the time to transfer funds into my current account to cover an upcoming direct debit payment to my credit card account [with a different issuer]. It was for a major purchase and was unusually large. I had not realised that direct debits were paid immediately at opening time on the day they are due; my funds transfer was arranged to land in my current account on the same day, but at the crucial time when the debit request needed to be processed, even with my ‘automatic’ overdraft facility, there were insufficient funds available. Credits to a current account accrue at the end of the banking day – a good lesson to learn – but only internal transfers and incoming direct payments [like pension or salary] would be cleared funds, so getting the timing spot-on is critical and it is better to be early rather than late. Direct debits are ‘pull’ transactions because the receiving bank initiates the collection of the money by requesting it from the paying bank. Because there were insufficient funds my bank returned the DD request to the other bank and made a charge for that. They didn’t pass the payment and allow my account to overdraw – the limit was truly the limit. I suspect that in a similar situation a personal cheque might have been passed for payment rather than returned, and a standing order might well have been executed because that is a ‘push’ transaction. Banks can make money out of failed transactions but are likely to be selective over which they allow and which they don’t. They might protect programmed direct debits [like mortgage payments, utility accounts, insurance premiums] by freezing cash withdrawals at ATM’s and over the counter, by denying debit card payments and forcing the customer to use a credit card instead, and by stopping non-prejudicial payment s like credit card repayments. As Paul said, this is all invisible. I expect there are rules and guidelines but they are bank secrets.

I would like a bank to look after my savings’ interests by informing me of their best alternative deal on interest rates when my current fixed-rate deposit accounts mature. I could then do some comparisons, and move my money if necessary, without having to research what my current bank has to offer. It feels as though existing customers are not looked after and they operate in favour of ‘new’ money.

Ian H.Thain says:
3 August 2017

I bank online with the Nationwide and can honestly say I have never had a problem with them. I am convinced that if children were taught at school how to manage a budget (with a free guide for their parents as part of the package!) far fewer people would ever have cashflow problems in the first place. I wrote my own cashflow spreadsheets for business thirty years ago, and even though I am now retired and living on a state pension which is far less than my income used to be, I never go overdrawn, my bills are all paid on the due day, and because my wife is a good shopper we eat well and live comfortably. I check my balance online against my spreadsheet several times a week, which takes only a few minutes and eliminates at source all FUD (fear, uncertainty, and doubt).

The key is to learn how to budget carefully, buy carefully, and then stick to it. I have taught an illiterate, innumerate, and socially very vulnerable young person how to do budget. She will never cope with a computer, but with a pass-book account she now manages her cash as well as I do. So if she can do it, anybody can.

And if we all did it, most of the bankers would have to leave banking and get an honest job.

Truth be told, none of the banks/building societies are interested in any way whatsoever with the welfare of their customers but are only interested in their profits, whatever they may say to the contrary. Their staff are constantly hounded to push products regardless of whether it is the correct product for the customer or whether they really want it or not. The best of a bad bunch seems to be the Nationwide but that might just be our local branch in Southport.

Jill N says:
3 August 2017

My adult son is totally useless at managing his finances. He regularly used to go overdrawn with his Nat West Bank account and over the limit on his credit card. They just let him do it every month as they were making loads of money out of him. In the end it has overwhelmed him and he just stopped paying them and moved to another bank. What they should be doing is hauling people in who go over their limits or unauthorised overdrafts more than say 3 times and telling them they have to manage their money better, giving guidance on how best to do this. If necessary, they should capture all their cards and cheque books so they cannot go over their limits, and give them an Electron card instead, which can only be used if funds are available. Not sure if they still do them but if not, they should. Whilst I acknowledge my son shares some of the responsibility for his debt(which, needless to say, they are still pursuing him for), I believe the banks have to take responsibility for the parlous state of a lot of peoples’ debts in this country and be acting in a more responsible manner instead of looking at profits all the time. After all, they are supposed to be the financial experts aren’t they? What I have suggested is how banks used to operate when I worked in one during the 60’s and 70’s.

Unfortunately, allowing customers to be in debt is lucrative and banks, as companies, endeavour to maximise profits, so there is not much incentive to take the sort of actions you have suggested, Jill. I believe that not exploiting people in debt should come under Corporate Social Responsibility.

I suggest that you might consider helping your son to challenge the credit card company for authorising payments that allowed him to exceed his credit card limit.

I think it would be a good idea for the banks to include relevant comments and statistics in the mandatory CSR statements in their annual reports, and also to report periodically to the Financial Conduct Authority on progress with reducing indebtedness.

STOP closing BANKS DOWN 3 in the last year so you have to go over 10 miles to sort anything out
NOT EVERYONE IS ONLINE………..its 2017 and seem to have gone backwards in REF to BANKS

I believe if one has held a Bank Account for over 1 year, the Bank should not be allowed to charge more interest than they charge for Mortgages, if one does accidentally go into overdraft as it is possible if one has D/D’s or because of a simple miscalculation the bank should write informing the person the same or next day regarding the overdraft. My be a maximum charge for the letter of £5 to be added to the interest only.

Most (maybe all) banks will send a text message to your mobile if you about to go overdrawn, and give you a brief time to put your account in credit. No charge for this I believe. Just ask your bank to include you in this service.

It’s just a shame that so many areas of the UK are not served by mobile reception. Perhaps they could be encouraged to use iMessage, which appears on notifications on Macs?

When opening an account on line I would like to see all relevant information appertaining to that account. Such as overdraft, interest, costs and dates that will alter the account in any significant way. At the moment it appears to benefit the banks to hide this information somewhere in the depths of the site. I wonder why?

Is having an arranged overdraft facility a good idea, or would it be better to expect customers to contact their bank before spending money that they don’t have?

It depends upon how it is used perhaps. It is an expensive way of borrowing for any length of time. I think it should be a safety buffer just in case you slip into the red. This might be an unforeseen payment, a timing issue between income and outgoings, for example. It maybe they do “have” the money, but it is delayed in arriving (an uncleared cheque going through the few days it takes perhaps).

Contacting their bank before overdrawing is a good option, but that does depend upon you knowing you will go overdrawn. In other words, you have your finances under control, a point I seem to be criticised for even suggesting. 🙂

Credit cards are a sort of continual overdraft. Controlling those might be a good way of preventing people get into more debt than they can handle. I have always found it much easier to decide to buy something with a bit of plastic than to obtain the cash necessary, or write a cheque. Perhaps because it is too convenient and gives less time to think about whether you really need to spend that money.

We really need some input from those who have up to date experience of struggling with money. Having the Conversation dominated by those who don’t have a problem and have already made their point might not be helpful. 🙁

With cash, it is easy to see what is left in your wallet or purse but we are fast moving towards cash-free transactions. Credit cards have made it easy to spend money that we don’t have, contactless cards and phone payment make this quicker, and the ease with which we can buy online have also helped many to get into debt. Many cannot relate to the problems because they don’t spend money they do not have, but it might be helpful to learn about commercial pressures and the factors that Ian has mentioned recently.

This Conversation is on getting rid of punitive interest charges and maybe we should focus on this.

“Conversation dominated by those who don’t have a problem and have already made their point might not be helpful.”. The reason I repeat some comments is that, in a long Convo, the original point made is long lost and may be relevant to a new commenter. So in my view worth reiterating.

A contribution on the original theme might be to suggest the charges that would be regarded as fair, and show how those charges are arrived at. In a similar vein we can complain about energy costs, but I have not seen a contribution that gives costs believed to be fairer and how those costs have been arrived at.

It is not easy for us, as members of the public, to know what charges are fair because we do not have access to the data held by the individual banks.

Below these comments, Kevin has pointed out that the interest charges levied by his credit card companies are excessive. Do you agree, and is it fair that you and I enjoy a generous period to repay our debts, payed for jointly by the charges levied on retailers and the high interest charges.

My credit card AER is around 18% but I avoid it, so it is not of concern. I don’t know what the default rate is like, which must be paid for, and these charges seem similar to overdraft interest. Is the rate fair? As you say, we do not know. But I can choose to avoid it.

One problem with discussing these sorts of matters is we do not have the facts on which to base realistic proposals, and Which? do not seem to either. We need to know, when we moan, the basis on which our moan is justified. We do need input from all parties involved to reach realistic outcomes. Sometimes contributors help with this – when people have access to particular knowledge.

You assume that the interest (in our “free” period is paid for “jointly” by those who don’t pay in full each month. I should think the actual interest cost on a 30 day £500 average balance is in the region of £1 or so, and this is likely to be well covered by the retailers fee. However, I’m just making a lay estimate; perhaps someone in the business could explain just how costs and charges calculated.

I believe Which? have advised credit card users to pay off their card in full by using a personal loan if necessary, and if they are eligible.

In addition to your figure of £1 the company will have significant other costs and need to make a profit, so I would be surprised if the retailer’s fee would cover them all, but as we agree, we don’t have figures. Credit card interest fees have been criticised for many years and presumably some of the critics have access to the relevant information.

It is strange that none of the credit card issuers seem to want to break away from the pack and charge a much lower interest rate. This is not how competition is supposed to work.Could it be that none of the cards want to attract the sort of customers for whom low interest rates are the prime consideration?

There is no doubt in my mind that the interest free period for payment in full by the due date is funded by the interest charged to those who do not pay in full – and bear in mind that their interest starts from the date of the transaction, not the date of the statement, so not only is the rate high but the duration is long.

Credit card users may also accumulate various rewards for using their cards – paid for by those paying high interest charges and the fees charged by retailers. Hardly fair, is it?

If a credit card company did charge a much lower interest rate they might not be able to compete with those that charged higher interest rates.

It does not seem ethical that banks including credit card providers make a significant profit by exploiting those living in debt.

Another curious situation is that credit card companies can adjust the interest rate whenever they like according to the customer’s account profile. I found once that after using one of my cards to book an expensive holiday that I wanted to pay-off over a short period I quickly got a letter telling me that the interest rate would now be X percentage points higher. So as soon as you needed a bit of payment flexibility they stung you for it. This seemed to me to be a mouldy chizz so I met the balance from savings and closed the account

Perhaps the credit card terms are what drive people to go into unarranged overdraft territory.

Exactly what I’d have done. It still galls that banks behave so badly, and seek to blame everyone but themselves for a situation in which they were utterly complicit.

It concerns me that many businesses push us to buy on credit, not doubt because it helps to increase sales. I walked out of a car dealership five years ago when the salesman insisted that it was cheaper to pay in instalments over two or three years and then make a larger final payment – or replace the car and start over again. (I’m not sure if it was a PCP agreement because they often have very substantial final payments.) After contacting other dealers I discovered that the paying cash was the more expensive option.

I am not keen on credit being so readily available. Apart from high interest rates, offers that allow customers to have furniture or carpets with no deposit and nothing to pay for months or even a year are worrying. Of course there are some who will make sensible use of these schemes but it’s tough if circumstances change and you cannot keep up with payments.

Yes, if I had wanted to buy a balloon I ‘d have gone to a novelty shop.

I think PCP’s are stoking up major financial difficulties down the line.

“It does not seem ethical that banks including credit card providers make a significant profit by exploiting those living in debt.”

wavechange – I agree and I also think that advocates of Islamic Banking and Finance would agree too.

I despise the credit card companies charging excessive high rates despite the base rate being 0.25%. For example, I have a M&S credit card with a £5,000 credit limit which they charge 20.9% pa – ( which when I took it out was 18.9% and they increased in recent years to 20.9% despite base rate descending). I also have a Sainsbury’s credit card with a £3,000 credit limit charged at 14.9% so no guesses as to which card I will use. However, both rates are too high and government should put a cap on credit card rates, say max 7.5% above base rate.

I avoid interest charges by paying my balance off in full each month. One way to avoid interest is to transfer between cards offering zero interest for a time. If you have substantial debt on a card, but assets available, it is probably best to pay it off in full. Even a personal loan, if available to you, to pay it off should be cheaper than paying the card interest.

My credit cards are paid off in full by direct debit each month. My free credit period is funded by those like Kevin who are paying high interest charges. That’s hardly fair and agree that it’s high time that interest charges should be capped.

All credit card purchases will require the retailer to pay a fee to their acquirer so this may well fund your interest free period, particularly with interest rates as low as they are, as far as the card provider is concerned. The card provider pays the retailer within around 4 working days, so their interest charge to fund the purchase for that length of time will be insignificant.

I’m well aware of this but what Kevin has commented on is the high interest rates charged on credit cards.

Shen says:
3 August 2017

I think that we should be allowed to pay more than 10% off our mortgage per annum, if there’s money left over at the end of the month. Why should we be punished with fines, for being smarter with money?

Avoiding “punitive” charges is a good approach as well as campaigning for fairer charges.
For those interested in keeping track of their finances, Which? published an online review of personal finance software at http://www.which.co.uk/money/money-saving-tips/budgeting/guides/personal-finance-software-reviews/best-personal-finance-software#sub-heading-1. Unfortunately only members can access the information as far as I know.

I have only ever used MS Money and found it did all I needed. It runs on my Win 10 PC and is a free download from MS – https://www.microsoft.com/en-GB/download/details.aspx?id=20738. It has good help to get you started and once you have got the hang of it I find it easy to use. You set up bank accounts – savings, current – credit card, bills with pay dates whether one offs or regular, income payments and make it as simple as you need. If a bill shows as due, for example, it either automatically reduces your bank account if the bank is to make the payment such as a direct debit, or if you pay it yourself. Simply checking each account keeps you aware of your situation and various reports can be printed to summarise your account balances for example.

This comment was removed at the request of the user

Why is it, when you present a cheque made out to myself from a recognised major U.K. bank you have to wait for up to 15 working days before your bank clears it and allows you to access, or transfer monies. To cap it all, when I went in to transfer some money, even though the teller new me and having banked with the branch for 52 years said “good morning Mr. Holton, how can I help you?” I was asked to give photo I.D; either a driving licence or passport and when I gave my bus pass as I don’t carry my passport or driving licence with me, I was told “that wasn’t acceptable”. I then stated that as he knew me and I had been with the bank before he was born and consistently kept £2000.00 in my currant account, then close my account now and Ill go to another bank this morning. The reply was, “just a moment Mr. Holton, I’ll see the bank manager. After 10 minutes, he came back and said they would accept the pass. Then to cap it all, on logging in, he stated I couldn’t transfer the money from the cheque, as it had only been 11 days and hadn’t cleared yet. Silly me. I thought they were to help and serve the customer. It appears not any longer.

That’s a nice anecdote, Roger. There must be many people that don’t have a current passport or a photocard driving licence. I have had an old green paper licence until I had to notify a change of address and thankfully my bus pass was accepted as identity.

On your other point, I wonder how many have to pay overdraft fees due the delay in money appearing in bank accounts.

How does the bank know that the delayed money will appear? It needs to set conditions for account holders that are clear, one of which is that if you do overdraw you will be liable to pay a published fee. The days are long gone when you knew your bank manager and could negotiate face to face; a consequence of running a business by computer.

Rogers cheque clearance story seems unfortunate. Lloyds explain the cheque clearance process as follows:
“Cheques go through a clearing process so the amount you pay in may not be available to use straight away. We meet the requirements of the 2-4-6 cheque clearance process implemented by all UK banks and building societies. The 2, 4 and 6 refer to the number of working days after a cheque has been paid into an account. Working days are Monday to Friday, except bank holidays. This is how the process works if you pay in a sterling cheque:

We will show the cheque in your account on the working day that we receive it;
From the second working day after we receive it, we start paying interest on the cheque (or using it to reduce the interest you pay);
From the fourth working day after we receive it, the funds are available for you to use but the cheque may still need to be returned unpaid up until the sixth working day after we receive it; and
From the end of the sixth working day after we receive it, if the cheque is returned unpaid by the paying bank, we cannot take the money from your account without your consent unless you have acted fraudulently.
So, for example, if you pay in a a Sterling cheque on a Monday, you will see it on your statement the same day, it counts towards interest on Wednesday, you can use the money on Friday and we cannot take the payment out of your account after the following Tuesday.

If the funds from the cheque are not available to use we may refuse to make a payment if you do not have enough money in the account to cover it. A cheque can be returned unpaid up until the end of the sixth working day after we receive it. If this happens, we will take the money from your account even if it puts you into overdraft.

Cheques are changing in 2017

In 2017, cheque clearing in the UK will undergo a fundamental change. Cheques will clear much faster and customers will have greater choice over how they pay in cheques. This is because instead of exchanging physical cheques, banks will exchange digital images of cheques.

Development of the new system is underway and in 2017 we plan to introduce new ways to pay in cheques, such as using smartphones. We will also upgrade the way we process cheques at our branches.

More details will be provided as we get closer to making the changes.”

Six working days can become eleven or twelve actual days if there are two weekends and a bank holiday or two in the period. This might explain why Roger had to wait so long for full clearance. But at least interest [if applicable] was accruing from the next working day after deposit.