FCA: why we’re taking action on overdrafts

People on a low budgets or disability or pensions do not have the same disposable income as people working also their income comes in cyclically (different dates each month) not on a static date like DDs. O/D fees are not necessarily because people *cannot manage their budgets or overdrafts*. Utility.companies often force customers to have Direct Debits as unless you do a DD you have to pay a much higher price per gas or electric units – some have no other payment system available. Which should be illegal tmultyyiply over estimates dictating monthly DDs – how many customers pay over the top monthly DDs – using customers for unofficial borrowing. AND BANKS are well aware of the conflict of regular & reliable cyclical income a/cs and that they are in conflict with UTILITY COMPANIES DDs. they still levy high fees for a couple of £s O/D for 12 hours!
Utility gas water & elctricity DDs often leave one in CREDIT to £50 – £150 + every 3 months, try getting customer service to reduce DD payments even if you are in CREDIT after paying the current quarterly bill, is impossible they’re on script.
Plus many utility companies won’t provide paper billing & force people onto DD & online accounts making it much harder to dispute billing discrepancies. NOTHING TO DO WITH CUSTOMERS’ PAYMENT RECORD EITHER. Companies estimate much higher usage to justify upping DD payments – if you do not arrange a D D which e.g. the gas companies raised at least 3 times in one year – with no notification you pay higher price per unit –

Maybe, but all you need to do to qualify for free banking is to make sure that you keep just enough in the account to avoid paying interest. Current accounts have never paid much interest.

Yes – even regular savings accounts in mutual institutions are barely paying any interest these days so banks are not depriving customers with savings accounts of any significant sums.

This is a good report and set of proposals from the FCA because there is no doubt that the differential treatment of arranged and unarranged overdrafts has been so badly exploited. I have previously been in favour of a differential because it seemed to recognise the benefit of making an arrangement in advance of overdrawing and the extra cost to the bank of servicing customers who have not made an arrangement. But this report clearly demonstrates (a) the unjustifiably excessive [and punitive] cost of unarranged overdrafts, (b) that the costs to the bank are not markedly different between the two types of overdraft, and (c) the social injustice of the existing system [vide the loyalty penalty on insurance premiums that is now under close scrutiny by the CMA].

I especially support the proposal that “there will be no more fixed daily or monthly fees – firms will need to charge a simple, single interest rate for each account”. This means that the distinction between
“arranged” and “unarranged” overdrafts can be dropped and the two terms taken out of the banks’ vocabulary. Competition will then open up between different accounts and between different banks, which is healthy.

I don’t suppose things will be as simple as at first appears, however. I cannot believe there will not be attempts to set up tiered interest rate structures according to the amount borrowed and/or according to the duration of the overdrawing; this would be a result of competition. There could also be an increase in the number of cases where an overdraft was declined, and where a seemingly never-ending overdraft was called in. There could be an attempt to make up for the lost profits by tweaking other banking service charges and introducing charges where accounts are currently free of charge [again with the possibility of tapered or stepped reductions in charges according to the account balance either month-by-month or on an annual average basis. I just don’t expect the banking industry to take this lying down.

Someone who manages their affairs correctly should not subsidise those who do not. Banks can budget for arranged overdrafts efficiently but not unarranged overdrafts. However bank charges for unarraged overdrafts should be fair, reasonable and regulated and, in particular, the vulnerable must be protected.

LOL, You seriously think that the banks won’t get this loss back from the rest of us? People should live within their means, the last intervention by the government resulted in backs reducing their interest-free buffer zones from £50 to £10

Tom! How can everyone live within their means nowadays?!!

I totally support you in this. If people go over an arranged overdraft amount they should indeed pay for it as it is so irresponsible. Shows a lack of “care for self” .
However people should not be charged huge fees for an unarranged
overdraft if the amount is small, say under £100 and for a period of less than 28 days. Perhaps the rate should be Bank of England Base rate plus 1% provided that the amount of overdraft is cleared within that 28 days.
Bank account holders pay for this in unseen ways, such as lower interest rates.

Some of the unintended consequences could be that certain customers have their overdraft facilities restricted or suspended until their accounts are back in balance, new limits could be placed on accounts generally with no allowance for further overdrawing without prior management approval, the stopping of cheques and other outgoings, and possible charges on current accounts counterbalanced by higher interest rates for savings and lower interest rates on personal loans for those who have a good record of account management. The banks have a wide range of measures at their disposal to offset the loss of income from the current high charges for unarranged overdrafts; they will describe these as incentives rather than sanctions. The concept of loyalty by customers will be revised to exclude those who have remained customers for long periods of which much has been in negative balance.