/ Money

Update: are you over the moon with Lloyds’ new approach to overdrafts?

Overdrafts Dossier

Lloyds Banking Group is reshaping its overdrafts to make them simpler. However, whether they will prove less costly for everyone is yet to be seen. How will these changes affect you?

In some very welcome news, we’re pleased to tell you that there has been some significant progress in our campaign against exorbitant unarranged overdraft fees. Today, Lloyds Banking Group has announced it is doing away with these fees.

This positive step sees Lloyds Bank, Bank of Scotland and Halifax simplifying their policies so that all fees and charges for unarranged overdrafts will be removed and, instead, all customers will pay a simple daily rate for using an overdraft with charges assessed on how much customers borrow and for how long. This new policy is due to be introduced in November.

Industry change is overdue

As you may know, unarranged overdraft fees have been a significant concern for Which? given the consumer harm caused by these charges, and we’ve been campaigning for change. What Lloyds has shown is that it is possible for banks to improve the way they operate their overdraft systems and therefore we now look to the other banks to follow suit.

This is, of course, not a magic solution – not everyone will be better off from this. So, it is critical that Lloyds Banking Group supports customers to help them avoid high charges and to reduce their level of debt.


Supporters helping bring about change

In order to show the harm caused by unarranged overdraft fees, today Which? submitted an evidence dossier to the Financial Conduct Authority (FCA) using the experiences that have been shared with us on Which? conversation and by supporters of the campaign. A lot of statistics have been bandied about in the overdrafts debate, but we wanted to ensure impact on individuals and their families is recognised and properly understood.

We heard from a lot of people with the same concerns as Adrian:

‘My bank charged me but it was their charges that sent me overdrawn and each month it becomes a vicious cycle. I’m on disability benefits, so I have limited income.’

Extortionate, disproportionate fees featured heavily in the stories we heard, like Mike’s:

‘My bank also charged me £30 per day for being overdrawn for just £2 for a total of 20 days. Then they also charged me with an unauthorised overdraft of another £30+ interest! Total cost nearly £1000 which was more than my wages! So I kept getting charged every month!’

Flo’s relation suffered a particular injustice when it came to fees and charges for letters:

‘The action of one bank caused a relative’s bankruptcy. If they went overdrawn, not only were they charged £70 for a letter but also another £80 for the unauthorised debt that the cost of the letter caused. This would then trigger another letter at £70. And so on. Despite this they offered to give them a loan as long as previous loans, some of which were nearly paid off, were consolidated into a new loan, ie ‘churning’. By their actions they caused more debt.’

Which? Overdrafts Dossier

Click the image above to the read our overdrafts dossier to the FCA. (PDF 1.9Kb)

We’re banking on further change

The FCA is currently reviewing high cost short term credit (including overdrafts) and we want it to use this review to ensure other banks follow Lloyds’s lead by restricting unarranged overdraft charges to the same level as for arranged overdrafts.

So, while it’s a big step forward today we know there’s still lots more to be done in this area. Hopefully our dossier of your experiences will help to make more change possible. Thank you to you all for sharing your experiences with us, enabling us to show the real life detriment felt by consumers.

Update: 2 November 2017

As of today, unarranged overdraft charges and monthly overdraft usage fees have been scrapped for Lloyds, Halifax and Bank of Scotland customers.

Overdraft customers of these three banks will instead pay a new flat fee of 1p a day for every £7 they borrow. So those who find themselves dipping into their overdrafts for should be slightly better off from today.

We first heard about this news back in July and welcomed the move by these banks. It’s a big step forward in limiting unarranged overdraft charges and bringing these fees more in line with those for arranged overdrafts. We now want to see other banks to follow suit and bring an end to these extortionate charges.

Are you an overdraft user? Have you been affected by extortionate fees in the past? Tell us whether you’re looking forward to these new changes, and why, below.

Comments

I am a small hotel owner and have an overdraft facility with my bank for my business, every year I need to renew this and the fees have gone up over the past 3 years for the arrangement fee from £100 to £250
I think this is extortionate, I also had to take out a loan about eight years ago due to urgent repairs that needed to be done on the hotel, but the amount of interest means that it hardly reduces the outstanding balance and if I could afford to pay it off early I would have to pay a settlement fee, surely this should not be allowed as they are already earning their interest on the loan. Does this new ruling to reduce charges for going over your overdraft apply also to business loans? We have a card terminal as most of our customers pay by card but these payments do not reach our business account instantly, just as we think we have cleared our overdraft we go back into overdraft as these card payments sometimes take up to three days to clear.
Why do these payments not go directly into our account? where is this money sitting for up to three days? Are the banks making interest on this as well? Seems they have us all ways as our mortgage is with the same bank and I am too old to change mortgage lenders now. We are supposed to work till we are older but cannot change to a cheaper mortgage lender due to my age,

I bank with Lloyds Bank,,and have an ordinary account,,which allows direct debits and fast pay use,,,,but they will not allow me to have an overdraft,, apparently I do not have the right account!!
My account does allow me to go up to £10 overdrawn without charges,,,and they send me plenty of text messages to keep reminding me, there is no money in my account,,,I have had charges for failed direct debits in the past,, and one just recently,,I get charged £10,,which I think is very steep,,,I think Lloyds could do better to help customers and be more understanding to their needs with how they deal with their banking actions.

Penny says:
13 July 2017

In 2001 my husband had a MI on a treadmill in hospital under medical supervision, 5 wks later he had a Triple Bypass. he stayed in hospital he had his operation, and came home 27th Dec. At this time we banked/mortgaged with NatWest Bank. Despite my salary going into our bank a/c monthly, they kept putting £30 bank charges on the overdraft every month. He didn’t go back to work until 2005. Needless to say they took in the region £6500 ++ Bank Charges, This year when we applied to the Financial Ombudsman they upheld NatWest Bank, and said we had no case. Just where is there justice in Bank Robbery, we nearly lost our home, even though we sent in Medical Letters etc to NatWest Bank, they called us Liars.

I have accounts with HSBC and Santander. A few years ago, having had work on my P/C completed, and only having a check book for my HSBC account, at that time: although I knew THAT one was low in content, I paid for the work that had been carried out: which was MORE than I had expected or had enough money on my person: with a cheque.
After leaving, with my P/C , I went straight on to Santander and withdrew quite a lot more than the amount than the cheque was written for, continuing directly TO the HSBC and deposited it into my account, there.

However, when I received my next HSBC statement I was appalled to discover that a penalty of over £40 had been imposed on my account for that day.

The money FOR the cheque WAS in my account LONG before my cheque had EVEN arrived AT the HSBC, (in Edgware).

I was VERY annoyed and returned to the Edgware branch of HSBC to calmly enquire the reason for the, over £40, penalty: for which I did NOT receive a comfortable reply: save that the penalty would be reduced by a very small amount .

I was absolutely DISGUSTED with the so-called ‘service’ which I received from staff in HSBC, Edgware

It would seem they charge more than payday lenders but disguise the true cost by not calling it interest. Payday lenders have been legislated against excessive costs but it would appear the banking lobby is too influential. A recent £5000 loan cost me £736 but an overdraft of just £250 with Santander over the same period cost me £800!!!!!!!!

Santander overcharging.

Belinda Gale says:
13 July 2017

I am with Nationwide and having problems with over draft charges. I am currently claiming benefits due to Ill health. Some one made a mistake with a change,so have a daily bank charge. I contacted the complaints department and have not heard anything back. Now at my wits end to what to do next!!!!

If you have been badly treated by your bank then switch to another and sometimes the threat of doing so will cause a change of mind. I was a Lloyds customer for many years and even though I did not have any problems
personally, although I am by no means wealthy, I always tried to manage my financial affairs carefully and tried not to live beyond my means. Nevertheless, I switched to the Santander 123 account which has been excellent for it’s cashback deal which is currently better than buying an ISA and their Customer Service has been excellent too. Fortunately I have never been overdrawn so I’m not sure what their charges are. But I would advise shopping around if you can to see what other banks’ charges are, just as you should do for car and home insurance. If being overdrawn very occasionally and especially through no fault of your own then banks should take this into consideration before imposing ridiculous penalty charges.
Well done Which! It’s time pressure was brought to bear on the banks in many areas of their business.

Having been caught out a couple of times with un-arranged overdraft charges I have arranged overdrafts on my accounts to cover accidentally going into debit. The irritating thing about this is if you don’t use it regularly the bank will reduce it if you don’t use it, possibly until it is non-existant.
The aim for me to have an arranged overdraft is to avoid un-arranged charges if it should happen accidentally, not to make permanent use of any overdraft facility with the attached fees for using it.
It is typical of bank manoeuvres that they could remove the arranged overdraft if you don’t use it and then you are back in the un-arranged overdraft charge zone.
Clearly they feel that with an arranged overdraft that is not being used regularly it is not in their best interests as they are not collecting arranged overdraft charges, without consideration to the clients trying to avoid the higher un-arranged charges.

I am pleased to see that Lloyds have decided to take this new approach to un-arranged overdraft charges as I bank with them. I also bank with NatWest and it is the same problem with them. Your survey doesn’t allow people to select more than one bank?

I’ve an overdraft facility with both my banks and I do not use them. Just a safety precaution. However the amount available has never changed in the years since I arranged them. Maybe Which? could look at this and see what banks normal practices are.

I would guess they are keen to help you avoid becoming reliant upon the overdraft. There may also be an anti-fraud element.

lottie says:
13 July 2017

I think you need to be clearer about your aims – they don’t read as aims – they are wish statements that no-one can do anything with. Try making each one SMART (https://www.projectsmart.co.uk/smart-goals.php)
1 – to get banks to treat customers fairly – which means what exactly? If you want change you need to articulate what it is you want/it will look like/see. Unfortunately, if you don’t like the way the bank treats you that does not make it unfair. “Fairness” could mean treating every customer badly – that would be fair (no difference in treatment of customers) but I suspect that is not what is meant
2 – banks to be publicly held to account – how? why? Again, what would this look like? And what will this do for their customers, or how they treat their customers?
3 – banks, regulators and government to deliver better everyday banking – what does that mean? What would you like the banks, regulators and government to actually do?

What are the success criteria for this campaign? How will you – and we – know when you have achieved your ‘aims’? If they are SMART then this will be easier.

Without a clear statement of what exactly it is you want, what needs to change, how it could change for the “better” in your view (banks don’t treat their customers badly as part of their business model, no matter how badly treated some of us feel). Banks probably believe they do treat their customers well and fairly. Tell them what they are getting wrong, why you think it is wrong/unfair/etc. and suggest what would be better for everyone (they can’t and won’t entertain anything that is right just for one person to apply to all). Same goes for the mission statement – what does “up their game” actually look like if it is done? How will it be determined that it has been done? People will always complain if they don’t like the outcome of a dispute, or the manner in which it has been handled, but that does not necessarily make it wrong or unfair, so the number of complaints is unlikely to be a useful success criterion of the change you are looking for.

If you do the above you are likely to get more people supporting your campaign as it will be clear what you are proposing, which currently it is not, and they can sign up to say that they agree with you. Or at least start with the points you made in the “Big banking changes we’d like from the CMA” (02/10/15).

I think a lot of the detail you are demanding was put forward in previous Conversations on this topic. Lottie. This is very much a ‘follow-on’ Conversation.

Nonetheless, a good challenge and a good plug for SMART actions.

It looks to me as though, at last, these changes by Lloyds acknowledge that “there is no such thing an an unarranged overdraft”.

I think many of the allegations about “unfair charges” relate to the complexity of the systems used, including the practice of piling charges upon charges, as a number of the above posts show.

I think practicable and fairer systems would include:

Accounts that cannot be overdrawn. Ideally, with no fees for “bounced” payments, but even charging a small fee for each bounced payment might not be unfair. [I have savings accounts that work like this, but they don’t allow the use of debit card payments, etc.]

Accounts that can be overdrawn – and then operate like a credit card account. So no fees or penalties, just interest charges at a predefined market rate. [I have credit card accounts that work like this.]

But neither of the above guarantees responsible financial management on my part. That was a life-skill I had to learn for myself, during years at uni on a meagre grant and/or whilst doing industrial experience on “blue collar” wages. […and, yes, that was a long time ago, in a century far, far away, long before our current “get up to your eyeballs in debt at uni” system was introduced.]

Lottie says:
14 July 2017

John, I had hoped that that would be the case but I could not see that anywhere. But more to the point, Which? don’t seem to have amended their aims or mission statement to reflect – Which?, how come?

I share your concerns, Lottie. When the same topic gets tackled several times from different angles in Which? Conversation it is very difficult to pull a coherent thread through it and see where we are relative to where we wished to be [if indeed that was ever made clear]. I think there is a deliberate vagueness about Conversations like this one and its related predecessors as Which? is probably looking for contributors to fill in the missing pieces of the puzzle and come up with proposals for change. That it is all very well and good if someone is then going to distil it all and draw out the essence, but that does not always happen. Frankly, that is not good enough if it is supposed to be the substance of a campaign.

Let us hope someone comes back to you on this. If we are not careful issues like this one can easily appear to be kite-flying exercises. I don’t personally agree with Which? on the stance it has taken on overdraft charges but I think those who do agree with it deserve to have a clear and unequivocal statement of the campaign aims and objectives and the way ahead based on the comments received and recognition of the original destination. I might even change my opinion and be supportive if that was clear.

Tricky things ,Aims and Objectives. Before SMART became a fashionable buzz-word I was taught the difference between Aims and Objectives: Aims are wish-list items, that you’d like to achieve. Objectives are specific changes that you’re actively working towards and will achieve. Thus an Aim might be to Empower Consumers, while the Objective might be to Ensure the Consumer can return good within 14 days for a full refund. The difference, as they say, is in the detail. SMART is more of a criteria-driven process for formulating Objectives.

Yes, I agree with you Derek – Lottie’s comment was a good challenge. There is a need for a more intelligent way of identifying Which?’s objectives so we can check the outcomes.

I object to paying the equivalent of 30 percent on overdraft charges. I pay one pound for every day I go overdrawn. This is higher than most loans. I personally think its scandalous.

John Schofield says:
14 July 2017

I want to sign, but, believe it or not, I cannot get the Sign the Petition item to work for me !

Sorry about that, John. You might want to try signing it using this link.

http://www.which.co.uk/campaigns/better-banks/

ian says:
17 July 2017

HSBC are currently and aggressively threatening their business customers with closure of their accounts unless they provide information that appears more likely to protect the bank from money laundering than the client from fraud as they claim.

I have been a Halifax customer for over 20 years and have an approved overdraft of £3000 out of which I’ve been using £2000 which gets cleared every month. Had a call from the local branch asking me to go for a meeting and was told that my overdraft would now cost from November £105. Got the impression they want to get rid of me. To which I will oblige, soonest possible. Funny, recently I contacted a PPI firm to check if I had ever been charged PPI by Halifax on mortgages and old loans without my consent and they have confirmed that Halifax had done so (awaiting full details). At least I’ll have some money back from them.
How this outrageous usury is allowed is beyond me. Ironically Halifax complaint about overdraft fees has made it much worse for those of us using planned overdrafts of £1000+.

Which? still persists in campaigning for customers who don’t arrange an overdraft with their bank to pay no more in fees than those who do (This months Money mag). So why bother? Let anyone take money they do not have, whether they can pay it back or not? This is what the bank will assess – see whether you are capable of living with borrowed money.

I cannot see the logic in this approach. If you want to borrow money by means of an overdraft, just arrange it. What’s the problem? If the bank refuses your request then maybe they have good reason, and maybe it protects the customer from themselves.

Or leaves them unable to cope, rent a house, pay for food… This is not a black and white situation.

If you want to borrow money from your bank (like from anyone else), simply make an application to do so. That seems the responsible approach. I do not see it as the commercial bank’s job to pay the bills of people who have insufficient money. That, for deserving cases, is a job for the tax payer through the benefits system.

“simply”… what if you need the cash to rent a room, pay for food, etc., but because of odd hours and wages you can’t manage it without an overdraft which they won’t let you because..oh, I don’t know – odd hours and wages? As I said, it’s not a black and white situation.

So should you negotiate with your landlord?I’m not clear what you want a bank to do. If you can demonstrate that your income equals your outgoings then an arranged overdraft will tide you over any mismatch. If your assured income does not meet your outgoings then you are asking the bank to risk lending you money they might not get back. So you need to look at your outgoings or seek help from the benefits system. Other lenders check whether a loan is affordable – mortgages, personal loans. I believe a bank is entitled to behave in the same way. This is not to do with any fees charged, but the principle of financial responsibility

Ah. I shall tell you exactly what I want the bank to do, although I’ve said it so many times I’m sure…

Simply be honest. Do not levy extortionate fees on the so-called ‘unarranged overdraft’ which, as has been pointed out, is a misnomer, anyway. Either stop the flow of funds when it exceeds an agreed limit or continue to allow the flow, but at the same interest rate as a normal overdraft.

And your touching confidence that “If you can demonstrate that your income equals your outgoings then an arranged overdraft will tide you over any mismatch.” doesn’t, I’m afraid, equate to reality for many people. The banks are not nice people in the main, and they exist to make money – lots and lots of it. If they can make even more by levying horrendous charges, then they will.

You confuse two issues. I specifically said I was not discussing fees, but the principle of giving your bank the opportunity to decide whether to allow you to borrow money from them, by means of an overdraft. I see no excuse for not giving them that courtesy. It is easy to ask. If they turn you down, it may well be in the best interests of both parties.

It is an individual’s responsibility to operate their finances properly and to spend within their means (there are exceptions that need special help). If they get in a financial mess, why should the rest of us who bank responsibly bail them out – because that is where defaulters’ money comes from? That is the job of others – family, the state for example through the benefits system for deserving people, for example, not the banks.

Perhaps those with iffy finances should be given a basic bank account that does not permit overdrawing,that does not allow outgoing direct debits, to help them control their finances better? Then when their financial history and abilities become clearer, allow more account facilities.

Ian does not seem confused to me.

Banks provide overdrafts as a service and will incur costs and although some will default on repaying their debts, providing overdrafts is very lucrative, I understand.

Banks also provide many of us with free banking services because we don’t go into the red.

Never mind. Let’s exploit the people who get into debt and take them further into debt. I’m very glad that Which? is tackling the problem of punitive overdrafts.

Malcolm: the principle and the punishment cannot be considered as separate issues so long as the banks continue to behave in the way they do. But I will deal with two points you raise:

It is an individual’s responsibility to operate their finances properly and to spend within their means (there are exceptions that need special help).

It’s the exceptions of whom I’m talking. And there are far more of them than you seem to realise.

why should the rest of us who bank responsibly bail them out

That’s how our society works. We, as a marginally democratic society, support the struggling until they’re able to stand on their own feet. The Banks claim to be socially responsible all the time, so one would expect a modicum of social conscience at the very least and not the licensed banditry that prevails at the moment.

John: there are doubtless some who abuse overdraft facilities wholesale, and some who are conned into so doing. But I do think the current approach is simply wrong.

malcolm_r commented that: “I do not see it as the commercial bank’s job to pay the bills of people who have insufficient money. That, for deserving cases, is a job for the tax payer through the benefits system.” and Ian provided various examples of folk getting into difficulty because of insufficient income.

I think our complicated and unwieldy benefits system is at the heart of these issues. On the one hand we want to help out any who have fallen on hard times. But, on the other hand, we don’t want to promote a culture of entitlement, that leads to a don’t bother to work, just go on benefits society. Also, we certainly don’t want a system that is amenable to benefit fraud. After many decades, I don’t think we’ve really done a good enough job against all of these aims.

To further Ian’s point, I agree that we want to avoid letting the banks cream off a steady percentage of money from those with the lowest incomes.

Even if we look just at those who are not receiving or eligible for benefits, they are exploited by punitive interest charges that cannot be justified. That can start a downward spiral of debt.

The confusion, wavechange, was that I was not discussing fees, but the principle of whether or not you should ask your bank for an overdraft facility and give them the opportunity to agree to it or not. Fees are a separate issue.

Having the courtesy to ask your bank whether you can have an overdraft faciltiy is separate from the fees involved – fees you agree to when you sign your contract with the bank.

The exceptions need special help, as I originally said. The question is where this help should come from. I am not aware that banks purport to give individuals money that cannot be repaid whatever their circumstances. Maybe a separate discussion could look at where this help should come from.

I think banks, and others, could do more to help educate customers in dealing with their finances. Equally, people need to face up to their own financial reality and do what they can to deal with it.

You’re wrong, there. Banks vary their contracts all the time – and you don’t have to sign to accept them. You’re deemed to have accepted them if you don’t reject them.

And it seems to me that there has been at the very least collusion between the banks and quite possibly a cartel to extract money from those least able to afford it. Malcolm, you keep harping back to “Having the courtesy to ask your bank whether you can have an overdraft facility”, which implicitly assumes that those who stray into UOD territory are just rude. Can’t you possibly conceive that some overdraw because they have no option and the banks’ refusal to allow them an adequate overdraft stymies any freedom of manoeuvre they might have?

Your mantra remains the same: individuals who overdraw through no fault of their own are simply incapable, inept and dishonest. Can you not for one moment see the banks are far, far worse? Just allowing people to overdraw then charging extortionate amounts is utterly dishonest. That’s why loan sharking was outlawed. Yet the banks continue with it, happily.

But you final line “people need to face up to their own financial reality and do what they can to deal with it.” reveals a blissful ignorance of reality. Dickens would have quoted it.

In my view a conversation is about putting comments in for discussion. Please address the comments but avoid the personal bit.

I have not said “incapable, inept and dishonest” nor “rude”. Courtesy means in this case giving the bank an opportunity to agree to an overdraft facility being arranged. If they do not agree to you having one, then should you go overdrawn you ought to know the penalties – mine are on the back of every statement. I do not believe we have a right to borrow money without agreement. If the banks are at fault, it is in allowing unarranged overdrafts if they believe the customer is unable to repay.

When my banks change their terms they inform me. That seems reasonable. I have the opportunity to change banks if I don’t like the terms.

If someone is unable to pay their way, are we expecting a bank to stump up the shortfall?

There are things I would like to see changed by banks, but dealing with my finances I see as my responsibility – I’ve learnt how to do it, sometimes the hard way. It is part of dealing with life. I have also helped those who found it difficult to handle their financesr.

The implication of your repeated posts about people unable to manage their finances, evoked the word ‘incapable’, because you’ve said it, albeit circuitously, on many occasions. ‘Inept’ is simply a variant, so accurate within the context and ‘dishonest’ is how you’ve implied some conduct their affairs vis a vis the bank. I’m simply summarising what you’ve actually said and the clear implications behind what you’ve said.

That wasn’t personal per se but repeating the same point over and over does make it so.

And when you say “I do not believe we have a right to borrow money without agreement” I would ask how can you? You see, there’s an inherent contradiction in what you’re saying: you can’t borrow anything unless someone allows you to. Which is really the entire point. The banks, by allowing you to withdraw money you don’t have, are extending an overdraft facility. They don’t do it because they’re nice people: they do it to make a lot of money.

I’m gald you know how to deal with your finances, but it’s also a great deal easier for you than a 20 year-old, working three jobs, being paid erratically and attempting to meet their obligations. They’re the group that need help – and the banks, instead, delight in making life as difficult and as costly as they can.

What I find odd is that the banks inevitably seem to get their comeuppance. You own ‘nice’ banks has just had to set aside £700m more for the PPI scandal, to add to its list of not very nice things it’s done over the years. How do the banks expect to be regarded when they behave so badly?

Do the banks actually allow people to take out money they don’t have ? Not really, they just can’t stop it – but as soon as it happens they apply a corrective . The question is, how severe should the corrective be ? Would it not be better all round if the banks just froze people’s accounts ? I don’t support that and it would only make matters worse for the case examples you mention. I am in favour of overdraft charges that are reasonable, supervisory action to promote responsible financial management, credit support for people with erratic income and expenditure profiles , and some incentive for those who seek approval before overdrawing.

Banks provides overdrafts as a service, just like the provide online banking, cards, ATMs and other services. Banks will incur costs when customers default on debts, but overall it is lucrative to have customers that are in debt. I appreciate that banks have, as commercial operations, to make a profit but I would prefer that most of this comes from those who are not already struggling with their finances.

I very much support the efforts of Which? to put an end to punitive overdraft charges. I agree with John about promoting responsible financial management and there are other measures that could help make it more difficult for people to overspend – such as limiting daily withdrawals on ATMs/debit cards/phone payments, and new expenditure on credit cards. We live in an environment which shouts ‘spend, spend, spend’ and it’s hardly surprising that many live in debt.

In response ti Ian’s post at 8:38 “repeating the same point over and over”. Well………………
“The banks, by allowing you to withdraw money you don’t have”. I said ” If the banks are at fault, it is in allowing unarranged overdrafts if they believe the customer is unable to repay.”
” a great deal easier for you than a 20 year-old, working three jobs, being paid erratically and attempting to meet their obligations. “ I did just that in my early 20’s and learned to spend within my means.
Maybe having exchanged views we should move onto to more positive grounds in discussing how we would like an ideal bank yo be run, remembering they are a commercial enterprise with shareholders as well as customers.n

I have no issue with that, providing we don’t have to rehash the same old arguments.

At the risk of pouring oil onto these troubled flames, I know that banks like to set folk up to fail, by offering them credit beyond their means. (It all seems so wonderful, until the monthly fees kick in, typically a month in arrears.)

However, it is also possible to have bank accounts set up so that you cannot overdraw them – in which case no punitive interest rates and charges will apply.

Changing from the former to the latter may be difficult – but, nonetheless, is not impossible.

If banks were “regulated” so that they could not offer expensive overdraft facilities to customers on low incomes, this might be a step in the right direction. (Or, it might just serve to put more business with “pay day loan” operators… )

Suppose we created a “starter” bank account for new clients with an unestablished track record. One that did not allow them to go overdrawn. So maybe no direct debit facility. Payments could be made by debit card, but would be declined if the funds were inadequate. It could also provide a booklet on managing an account, budgeting, and free software to help them with this. Once they have demonstrated a pattern of income and outgoings, graduate to a more flexible account.

Nothing we can do may prevent some people for managing their finances badly or irresponsibly. If they genuinely want help sorting it out then the banks should be receptive to personal coaching. If not, then the bank may choose to close the account.

Instead of arguments I suggest proposals for rational discussion. Maybe we could find a banking model that would appeal to both sides – but it would need to survive in the competitive global economy.

Wavechange, when you say that banks provide overdrafts as a service I feel that needs qualifying: they provide authorised overdrafts as a service, and when they authorise an overdraft the customer is no longer taking out money they do not have. So far as I am aware, banks do not provide unauthorised overdrafts as a service because they do not agree to them – as I said above, they just can’t stop them. Most banks give their customers an overdrawing allowance on their current account which is intended to deal with the normal ups and down of personal financial management; if that is not adequate banks expect their customers to request alternative facilities, not just run into the red of their own volition.

I also support the Which? campaign to stop punitive overdraft charges, but I remain to be convinced that a reasonable additional charge is not appropriate for those who overdraw without speaking to their bank about it.

Anyway, Lloyds is going to deal with authorised and unauthorised overdrafts on the same terms so we shall be able to see how it works out – whether it is as even-handed as they make out or whether there will be other means by which customers who overdraw routinely and excessively will be dealt with. I certainly think banks should be contacting those customers who are struggling with their finances and offer practical guidance and support before he or she becomes a formal item on the managerial agenda.

I see unauthorised overdrafts as a service, John. The current rates are published alongside other fees for operating an account. Banks might not agree with unauthorised overdrafts on principle but I have not seen any great concern about customers in general using them. That’s hardly surprising because their aim is to make a profit and these overdrafts help them to achieve that.

I don’t suggest that banks should be benevolent, but rather than exploiting their customers by levying high interest rates they could charge modest interest rates and remove privileges as I outlined earlier.

I am not even keen on arranged overdrafts because it would be better to have customers living within their means. My bank shows my balance and alongside that is something like ‘available’ – which includes the arranged overdraft figure. That promotes the wrong message.

The available balance shown on my statement does not include the overdraft facility. I do not set out to make use of my overdraft as spending money. But it could be useful in a particularly heavy month if the income has not yet arrived, or you are a little tardy in transferring money from another account to cover the shortfall.

Declining to pay a direct debit can have severe consequences – car insurance or house insurance would leave you uninsured for example. So a bank may also see to it that you are not left in this position if you have not arranged a facility. All well and good, but assuming you have the means to pay these normally, but slip up on income temporarily, I still maintain the correct way to deal with your bank is to arrange an overdraft facility. Why not?

Just because there is a scale of charges for something does not make it part of the service, in my opinion. But let’s leave that point where it lies and move on.

I can see what you are saying about arranged overdrafts, Wavechange, and have some sympathy with it if the arranged overdraft is to be used for day-to-day expenditure. That was never their intention – they were a facility to tide people over a short-term cash-flow situation or special expenditure requirement [like a family emergency, installing a new heating system, building an extension, or replacing the car] and where there was a repayment plan and an end to the arrangement. This was the understanding before credit cards became universally available. I don’t have any objection to arranged overdrafts for their originally intended purposes and they are generally cheaper than other forms of borrowing [or credit as that is euphemistically described to make it sound more acceptable]. I criticise the banks heavily for allowing people to run on empty for far too long without intervention and for whacking them with compounding charges that eventually ruin them. Overdrafts should not be allowed to become part and parcel of the regular budget and I think banks must accept their share of the responsibility for avoiding that. I see no justification for any concept of punishment and regard that as an indictment of the banks’ conduct of personal accounts.

Barclays, I understand, no longer allow anyone to go overdrawn, or beyond their arranged limit, except in emergencies when it must be agreed with the bank. That seems like a good way, and will make it imperative for people to watch their finances.

Budgeting and basic (domestic) finances should be taught to everyone at school. are they?

Only in the playground, Malcolm. There is hardly any evidence to support the notion that it is taught in the classroom.

Sex seems more important than finances (as in education). Seems to put the cart before the horse. 🙂

The real issue is that many parents abdicate their responsibilities in both instances.

I must say I do not see why those who make proper arrangements with their bank in advance to spend money that would make them overdraw should not gain some advantage over those who just do it without asking. The difference need only be 1% on the monthly interest rate – but there needs to be a difference.

Following up Ian’s point that “there are doubtless some who abuse overdraft facilities wholesale, and some who are conned into so doing”, I don’t know enough about the mindset of the first category. Since unauthorised overdrafts have usually attracted penalty terms it seems perverse to knowingly incur such high charges; I can only assume they apprehend that a request for an arranged overdraft will be politely declined or only made available on special terms that are just as high as for an unauthorised overdraft. For the second category, I do not understand who is conning the customer.

I accept that the current approach by most banks is wrong-headed because it makes no attempt to help those who are in a financial bind to get back on their feet; it is also bad banking because if they ruin their customers the banks [and all their other customers] will only be the losers in the end. Nevertheless, I feel it is sensible – and in the interests of good financial guidance – to maintain some incentive for people to make acceptable arrangements with their banks rather than become a ‘case’ for hard treatment.

I think what this whole debate indicates is that the banking fraternity does have a punitive streak rather than a supportive culture and that is probably because the banks are making a lot of money out people’s misfortunes and staff are in receipt of bonuses as a consequence.

John: when you said

For the second category, I do not understand who is conning the customer.

I can give you an example. Many young people, anxious to stand on their own feet, will move into a flat but – because of the very high rental costs – do so with flatmates,. Sometimes, a less than forthcoming flatmate can manipulate another into setting up standing orders (which are often required for rental properties) and then not pay their share until pressed or until late.

It can be argued that it’s the responsibility of the connee to watch out for this sort of behaviour and not tolerate it, but the young and less wise sometimes do things they should not.

I’d suggest this is a matter for the youngster to seek family help, if possible, to resolve. They could discuss the problem with their bank and seek advice on how to deal with the problem.

Sadly, the banks are not nice people. And no family might be available. The only answer is to force Banks not to behave as badly as they do.

Perhaps you should join my bank which has always been nice, and helpful. But then, I am nice to it.

I’m pleased. Otherwise you might find yourself out on the street.

Thank you for the explanation, Ian. I sense that you might have had close involvement with such a problem. I had not imagined that such despicable behaviour by flat-sharing friends was prevalent enough to influence the consideration of overdraft policy.

Since banks that harmonise the charges between authorised and unauthorised overdrafts will wish to achieve the same income it is bad news for those who act prudentially and who will have to pay more in future. I can see no reason why they should bother to arrange their overdraft in advance. I think that is an unfortunate outcome because it undermines sound management of personal finances.

I doubt if banks will be able to make any significant administrative savings if their customers no longer come into the branch to arrange an overdraft and it could be that it will lead to escalating personal debt levels that cost even more to deal with. When a customer has an authorised overdraft there is usually both a time limit and a money limit – so there is a degree of supervision; how will those who just run into the red when it suits them and stay overdrawn for as long as they like be treated when the extent of their debt goes into the danger zone?

Overdrafts have usually been considered more convenient than personal loans because during periods when the account is in credit no charges or interest payments accrue. However, the future revolves around those who are permanently overdrawn and who will set the price of borrowing for everybody else. Personal loans on set terms usually have just one initial arrangement fee and a lower interest rate than overdrafts and for many customers that is preferable depending on their account balance profile. Banks might withdraw such loans and just let everyone overdraw since it will be more remunerative for the bank.

And finding a branch isn’t the easiest thing to do at the moment, as they’re all closing them rather quickly.

Malcolm: your ‘nice’ bank has an interesting recent past. In 2009, a case was brought against Lloyds by HM Revenue and Customs on grounds of tax avoidance, there were 9,952 complaints via the Financial Ombudsman Service in the last half of 2009, roughly twice the number of complaints received by Barclays—the next-most-complained-about UK bank, and to continue their ‘niceness’, in 2010 they were involved in Money laundering, which cost them around a third of a billion. They’ve also been criticised for failing to compensate, or even apologise to, victims of fraud perpetrated by their employees, so yes – a delightful and decent crowd…

I thought Malcolm used the same ‘nice bank’ as I do, and it isn’t Lloyds. We prefer a mutual institution so we can be nice to each other across the counter.

Quite right John.

Sorry; I erred by assuming that Malcolm’s comment was associated with the topic title. Yes – mutual institutions are definitely the best option. But it still proves my point which was that banks are not inherently very ice people.

I wonder what happens about direct debits and standing orders if someone goes overdrawn. It’s tough on companies and other organisations if someone cannot manage their money. Some of those who live in debt are well payed and have a regular income but often spend beyond their means. I think it would help this sort of customer to expect them to maintain a minimum level of credit in their account so that if they do overspend one month it does not take them into the red. Having an arranged overdraft is almost like an incentive to use it, in my view.

My remarks are obviously not relevant to those struggling on a low income.

I have arranged overdrafts simply to cover any possible error in maintaining my current account with sufficient funds to cover its outgoings. I have never considered them as extra spending money. No more than i do my credit card limit (I pay the balance off monthly).

It would be interesting if Which? surveyed its connect group to see who have arranged overdrafts and how they use them. Are they an emergency back up or are they regularly spent?. If the latter is the case I would have thought a much better way of borrowing money would be through a personal loan.

How are people on low income best helped? Might be a good Convo topic?

Or perhaps an examination of all the existing charities/offices/on-line resource actually committed to helping people manage.

Then we could steer people to them when the Conversation is broached – if ever. I did publish the research on the higher incidence of debt amongst those mentally impaired – linked with point of sale finance which is under-regulated.

However overall I think possibly it is a specialist subject for solutions and an open subject for people posting how it affected one of their relations/friends etc.

As someone who spent many years dealing all manner of overdrawn, and borrowing, and mortgage customers I would be very surprised to find human nature had changed much from the last century.

Progress of course has allowed people to spend more easily and th personal touch, where I would genuinely care to keep my clients on the straight and narrow has long gone. The really rather sad things is that lending staff were dispensed with as formulaic lending was introduced. The advantage – other than for salaries – was that AI cars not for humans and the aim was to lend to customers up to the maximum they could possibly service.

Who cares about repayment if they are perpetually on the hook.

One think that could and should be examined is the habit of the major lenders to sell of the debt to shadowy firms when it goes into default. Banks who lend should be made to sort out the messes their customers get into when the debt-load becomes insupportable.

BTW – to clarify. Lloyds was the cleanest of the banks until coerced into taking over HBOS which was by far the dirtiest Bank with incredibly lax controls. The filth tarnishing the Lloyds name now is mainly HBOS derived.

As far as l am concerned Lloyds is a fantastic bank when l got hacked for £25000 a couple of years ago it was sorted out within hours, my card cancelled and a new on in a couple of day. Then just the other day l had a suspicious payment for only £5, once again that was sorted immediately. I got my new card on Tueday, excellent once again. Mind you if you could have seen the state of the envelope through the post, very torn and my card showing. I have yet to speak to the Post Office.

Sorry that should have read £2,500

We currently have an overdraft of £2800 (due to having to replace our boiler last winter) and are at the top end of it each month. Under the new rules I will face charges of around £140 a month or so as opposed to the current £50 a month. This will create hardship for my family and will never see us out of debt.
Unfortunately due to a previous grievance with a catalogue I refused to pay a bill which then went to a collection agency who mark each payment as a defaulted payment meaning I can’t get a loan to clear the debt. So with no way to clear this in 2 months my family is screwed and this is going to have more impact than I can imagine due to further stresses this will bring especially being introduced just before Christmas as well. Lloyds have said there’s nothing they can do to help my current situation and suggested that I pay off my overdraft. (Probably using magic beans)