/ Money

When banking fees creep up on you…

For anyone who manages the household finances, you’ll understand the frustration of a bill arriving just days before the money you need to pay it with has reached your account. And then the fees start to hit.

Unfortunately my husband (our regulars will spot my new married-name!) accidentally transferred his contribution to our mortgage to the wrong bank account.

He (conveniently) transferred the money to his personal account, rather than our joint account. I had my suspicions that this was a deliberate mistake, but just two months into married life, it seemed mean to judge him like that.

I called our bank, HSBC, to explain that there’d been a hiccup and the money was being transferred – worried that a penalty may be on its way. The bank waived this charge but unfortunately another one followed when we went overdrawn again waiting for the books to balance.

Goodwill gesture

The error was of course our fault (or his should I say his!) and the bank were able to refund one charge as a one-off goodwill gesture. But it’s easy to see how these fees can quickly spiral out of control.

HSBC has now changed its unauthorised overdraft policy from a £25 fee to a £5 daily usage fee payable every day a customer is over their agreed limit. The daily usage fee is capped at £80 in one monthly charging period.

I’ve now set up an authorised overdraft, and we’re trying to put away a little more each month to stop this from happening again.

And it appears I’m not alone. Our new research reveals that around 2.5 million people, say they’ve used an unauthorised overdraft in the last 12 months. More than two thirds say the fees and charges are too high or unfair, and around a third have been surprised by the amount they were charged.

Fees and charges too high

More than 200 people have left comments along these lines on our Sneaky Fees and Charges campaign, including Matthew:

‘I was stung by bank charges when a charity cashed a cheque after five and a half months. I paid the charge for not having funds in that account, though there was plenty in my main account. Then, when the next statement came, I was charged for an overdraft. I rang the bank and they did remit all the charges.’

Yvonne told us:

‘I’ve been stung with bank charges for being overdrawn for less than a pound for less than a day!’

Have you been stung by a fee you weren’t expecting – or accidentally slipped into your overdraft when juggling the bills? Do you think more could be done to make the fees manageable for those in financial difficulty?

Comments
Profile photo of malcolm r
Member

The thrust of this discussion seems to be that someone does not have the funds in their bank account to cover a withdrawal and the bank is being unfair to charge a fee.The simple solution surely is, if this is likely to happen to arrange an authorised overdraft with your bank. Mine does not charge at all for the first £10, 50p a day otherwise up to my agreed limit. No charges at all in the first year. That seems a good deal? It costs nothing to arrange, so why not, even if it is just to cover a possible mistake?

If your bank will not give you an overdraft facility then it may be because you are a poor risk – not likely to repay them.

It is surely your own responsibility to manage your finances – at least knowing what money you are spending and when it leaves your account. There are a number of good software packages for personal accounts reviewed by Which? I use MS Money – sadly no longer available.The unpaid charity cheque above should still be on your own list of debts against your current account; surprising though it was allowed to be cashed after nearly 6 months – I thought 3 months was the limit.

Which? seem to have a policy of suggesting that unauthorised overdrafts are a basic right, and they should be cheap. I see them as taking money that is not yours without consent and they should not be seen as an acceptable way to run your finances. Particularly when authorised overdrafts are on offer.

Profile photo of wavechange
Member

Of course people should manage their money carefully, eat five portions of fruit & veg per day (sorry, it’s seven now), avoid saturated fats, brush their teeth twice a day, take lots of exercise and go to church on Sunday. Unfortunately, we live in the real world where 2.5 million people have landed up with an unauthorised overdraft in the past year. I expect that some of them will have credit card and other debts, even payday loans. It’s likely that some of these unauthorised overdrafts happen as a result of lack of communication by users of joint accounts. Some will be due to more important priorities such as accidents and serious illness.

Whatever the reason, it’s important to recognise that unauthorised overdrafts are a service provided by banks. I appreciate that some people will default on the loan but overall it is rather lucrative to provide unauthorised overdrafts at high interest rates. I think Which? should be pushing the banks to offer fair interest rates and am glad that Charlotte has posted this Conversation.

I should say that I have never used an overdraft. I did once have an unauthorised one but that was the fault of the bank. But I am very much opposed to those who have financial problems for whatever reason being exploited by these companies.

Profile photo of wavechange
Member

I should have added that it would be interesting to know what profits the banks make out of providing unauthorised overdrafts. I would not expect a company to run this or any other service at a loss, just not make excessive profits.

Incidentally, it wasn’t me who marked down your comment. I know that we are both concerned about the number of people dependent on credit, rather than saving up for non-essential purchases.

I’m fairly sure that most cheques allow six months before they have to be reissued.

Profile photo of malcolm r
Member

wavechange, why not arrange an (authorised) overdraft facility? It is easy and free.

Profile photo of wavechange
Member

My current account has had one for many years, but it has never changed from £200. I assumed – presumably wrongly – that an authorised overdraft was a standard feature of currents accounts these days. No doubt I should switch from NatWest to a Which? recommended bank but all has worked very well over the years.

I don’t think it is helpful that my online banking service shows the amount available to spend as the balance plus the authorised overdraft.

Profile photo of malcolm r
Member

“it’s important to recognise that unauthorised overdrafts are a service provided by banks.” I don’t think it should be described as a service, more as a concession. The bank has the option to refuse to make a payment from your account if you have insufficient funds available.
I agree that in the extreme cases you mention it is a safety net – and most banks I suspect will look fairly at your situation. It is the routine use of unauthorised overdrafts that the banks, in my view, are entitled to charge for as their ability to be repaid might be a problem – and responsible account holders will pick up the cost in the long run. Also, the penalty costs incurred of using an unauthorised overdraft would be put to much better use.

Profile photo of wavechange
Member

I don’t mind whether it is a service or a concession and I appreciate that a bank could decline to make a payment, but it was extremely valuable to me to have an unauthorised overdraft on one occasion because it meant that several direct debits were payed, causing problems for others and no doubt for myself when I had to sort out the mess. When I notified the bank of their error, everything was sorted out and no-one was inconvenienced.

I have no problem with banks charging for unauthorised overdrafts but the purpose of this Conversation is to discuss whether the fees are reasonable. I support that because the last thing I want to see is people who are struggling financially to be exploited by the banks.

Profile photo of wavechange
Member

That should read: ……several direct debits were payed, WITHOUT causing problems for others…..

Profile photo of malcolm r
Member

Perhaps Which? should ask the banks to explain how their costs are arrived at – although inevitably commercial companies will not want to disclose information of value to competitors. Without an idea of costs and cost provisions involved I don’t think we can assess whether something is reasonable. I would suggest if we think their fees are unreasonable we either don’t use the “service” or we move our account to a better provider, or another source of loan finance. We are not compelled to borrow money from any one provider.
As I said earlier, the one-off mistake such as yours is normally dealt with fairly; my concern is with the habitual use of unauthorised borrowing. You can discuss your financial problems with your bank and they may hopefully help you find a mutually acceptable solution. If you don’t try to let them know of a difficulty you can’t blame them for penalising you – they are not charities.

Profile photo of wavechange
Member

Hopefully Which? is already on the case for finding out about the costs of overdrafts. I don’t care whether the companies want to provide us with information. If they all do, then that is fair and it could help their customers.

You have regularly advised us to shop around for better prices in other Conversations. That’s fine for many of people but what about the elderly, those who are living with serious health issues and have other priorities. If someone has just lost their job and has to cope with mortgage/rent and regular bills, perhaps their priority should be to find a job rather than a cheaper overdraft. Obviously they need to spare the time to discuss the problem with their bank. A large number of topics on Which? Conversation are about how we are not treated well by companies. It seems to me that there might be a case for regulation of the amount of interest banks can charge on unauthorised overdrafts. And no, I don’t expect banks to act as charities.

I will leave this topic for now because it would be good to let others make an input. 🙂

Profile photo of VynorHill
Member

I’m lucky enough to be writing from the right side of the fence since I don’t currently have an overdraft. Folk could turn round and say “It’s all very well for him…” but I’m with Malcolm on this. I’ve had an authorised overdraft for as long as I can remember; one I didn’t ask for. The point about an unauthorised one is, as Malcolm says, it’s something that hasn’t been agreed with the bank. Shouldn’t there be some sort of penalty for doing that? How much is a matter for debate, but it should be enough to discourage the practice. If one becomes financially stretched, either accidentally or through unfortunate circumstances, one of the actions to take is to inform the bank and tell them what has happened. This dialogue allows the bank to exercise some discretion and it makes the bank responsible for it’s conduct towards the borrower, rather than the borrower expecting discretion without permission. At the same time it is wise to show that every effort is being made to regain financial control, and to seek help if the rocks seem a trifle too close. This is a distressing situation to be in, but to arrive there without knowing is a dereliction of duty.

Profile photo of VynorHill
Member

Its not it’s -sorry.

Member
Malcolm B says:
31 August 2014

One might not mind paying bank charges if they seemed proportionate and transparent. But when the banks want tens of pounds for a modest overdraft for a few days, then one charge triggers another, and so on, it’s very difficult see charges as other than profiteering.

Profile photo of malcolm r
Member

Malcolm B, my bank charges 50p a day for up to my limit – I don’t think that is unreasonable. Their unauthorised fees are clearly stated, so should be no surprises if you haven’t agreed an overdraft.

Profile photo of Charlotte Fitzgerald
Member

Thanks for all your feedback. You make a fair point Malcolm and I completely agree – we went overdrawn, we didn’t have a pre-arranged overdraft on the account and we were in the wrong. In our example the cost was reasonable to the payment as the money was for our mortgage, the largest of our monthly outgoings. But it does sadden me when I read examples of people being charged £20/£30 for going overdrawn for just a pound or two.

From a campaigning point of view we understand that someone needs to pick up the bill for mistakes like these – but we’re encouraging the banks to make them cost reflective to the customer to help prevent a small error spiralling to a bigger issue.

Wavechange: One of the things we’re specifically calling for in terms of overdraft fees is for the banks to allow their customers to opt in and opt out of unauthorised overdrafts at no extra cost, with “opt out” being the default position when an account is set up.

And as an aside, this weekend prompted the ‘quarterly financial review’ – oh yes, we really do have those in our household. And we now have an agreed overdraft in place 🙂

Profile photo of malcolm r
Member

Charlotte, I’m intrigued as to what is meant by opting in or out of unauthorised overdrafts. If you opt out, does this mean you will agree never to allow your account to be overdrawn? In that case, requests for payment on your account that would take it overdrawn will be declined by the bank and, presumably, charges will be made for doing so. Or have misunderstood the proposal?

Profile photo of Beryl
Member

Malcolm: As I understand it if you don’t opt in on unauthorised overdrafts your banks standard practices won’t apply to your everyday debit card and ATM transactions. These transactions will be declined when you don’t have enough money in your account, but you will not be charged overdraft fees.

This does not apply to cheques or automatic bill payments. Your bank may still enrol you in their standard overdraft practices for these types of transactions but you would need to talk to your bank if you don’t agree to this. You may/may not have the option to cancel. I stand to be corrected if this info is inaccurate however.

I had a similar experience to Charlotte but in my case it was a solicitor who held onto the proceeds from the sale of my house in her account for a couple of days, gaining interest no doubt. I was charged interest by my bank on money from my account to purchase the new house. I talked to the bank who agreed to waive the fees because the solicitor failed to utilise the CHAPS system.

Profile photo of wavechange
Member

Thanks Charlotte. Giving the customer the option of deciding whether or not to have an unauthorised overdraft facility would certainly put them in better control of their finances.

I wonder how many overdrafts are as a result of joint accounts and lack of communication about who can spend what that month.

Profile photo of Charlotte Fitzgerald
Member

Good question Malcolm R – I’ve asked some of our policy experts. Will post a comment when they’ve confirmed.

Member
tuppennyblue says:
2 September 2014

I am sure that my bank (HALIFAX) applies last months overdraft fees moments before midnight quite deliberately so that I go over my limit and there is no chance to rectify the situation before the end of the day.

Member
Sharon says:
19 October 2014

The banks should simply not sanction any payments that make individuals exceed their available balance. Doing so is simply profiteering and is a scam. I have an overdraft control facility to insulate myself from this. I got caught out once and the FCA filed in my favour and all sums were returned to me. Legally the banks may be able to do this but morally its indefensible.