When banking fees creep up on you…

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.

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.

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

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.

“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.

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.

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

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.

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. 🙂

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.