Consumers frustrated by unauthorised overdraft fees

Ahead of the publication of a wide ranging Which? report on the state of the credit market, Which? calls on banks to Stop Sneaky Fees and Charges on unauthorised overdrafts, as more than two thirds of users say charges are too high or unfair.

New Which? research reveals that around 2.5 million people, approximately the same number as those that have used a payday loan, say they have used an unauthorised overdraft in the last 12 months. More than two thirds (68%) say the fees and charges are too high or unfair and around a third (36%) have been surprised by the amount they were charged.

Five weeks since the launch of the Stop Sneaky Fees and Charges campaign, nearly 25,000 people have signed up to pledge their support to put an end to fees across the financial sector that are hidden, excessive or make the total cost difficult to understand and compare.

While we welcome recent changes that providers have made, banks and current account providers are using a wide range of different charging structures that make it hard for consumers to make like for like comparisons and select the best current account product for their needs. These include charging interest, a set daily and/or monthly fee or a combination of these fees, which are in addition to set up fees or paid and unpaid transaction fees that can take customers further into the red.

In addition there is a lack of consistency in how providers display charges on their websites, which makes it difficult to calculate fees. This means consumers risk paying substantially higher charges than necessary.

Which? executive director, Richard Lloyd said:

“Consumers are fed up of being hit by complex and costly charges which make it almost impossible for them to shop around for the best deal for their needs.

“We want all banks and current account providers to Stop Sneaky Fees and Charges and put an end to excessive, unclear and hard to compare unauthorised overdraft fees that could leave consumers paying over the odds.”

Which? is calling on all banks and unauthorised overdraft providers 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.
  • Provide easy access transaction data for consumers as part of the Government’s midata programme, so consumers can select the best current account for their needs.
  • Promote and encourage the use of midata in the lead up to, during and following the launch of the scheme, to make consumers aware.

You can sign up to our campaign here:

Notes to editors:

1.   “Credit Britain 2” is the latest Which? report on the state of the credit market, and it will be published on Saturday 6th September 2014

2.    Which? launched the Stop Sneaky fees and Charges campaign back in July, since then more than 24,000 people have pledged their support. We want companies to take action across financial fees and charges, including on insurance policies, mortgages, bank accounts and credit cards, to be upfront, fair and for providers to make it easy to compare the overall price:

·         Don’t hide the full cost from customers: Fees that are part of the total cost of a product should be prominently and clearly displayed.

·         Stop making it hard to compare prices: It should be easy to work out the best deal, taking all fees and charges into account.

·         Stop stinging customers with rip off additional charges: Extra compulsory fees after you’ve purchased a product should be cost-reflective.

·         We also want the Government and regulator to stop sneaky fees and charges by conducting a thorough review

3.    An unauthorised overdraft is when a bank customer finds their balance has fallen below zero without having arranged an overdraft in advance or when a customer exceeds their pre-arranged authorised overdraft limit

4.    An unpaid item transaction fee is applied when a bank decides not to process a payment either while a customer is in their unauthorised overdraft or when the payment would take them into an unauthorised overdraft.  A paid item transaction fee can be applied for each transaction that results in or increases an unauthorised overdraft.

5.    In the last few months, a number of banks have made changes to their charging structures for unauthorised overdrafts on some or all of their accounts. For example:

·         As of November this year, in addition to interest charges, HSBC and First Direct will charge a £5 daily usage fee for unauthorised overdrafts, capped at £80. This is in comparison to a previous overdraft set up fee of £25 and a cap of £150.

·         Barclays have reduced costs associated with unauthorised overdrafts, capping these costs at £35 a month instead of £110 as it was previously. They have also reduced the maximum cost per day for unpaid transaction fees from £40 to £8 and removed paid item charges.

·         Santander have increased their usage fee for unauthorised overdrafts from £5 to £6 per day, as well as removing the monthly caps they had on these usage fees on their Everyday Current Account. They have also removed their paid and unpaid transaction fees for their 123 accounts, and reduced these fees from £25 to £10 for their Everyday Current Accounts.

6.    5% of respondents to our survey currently use or have used an unauthorised overdraft in the last year. Using the latest ONS population data for GB adults (mid-2013 population figures) this is the equivalent of around 2.5 million people.

7.    Unauthorised overdraft users were asked ‘How do you feel about the way that your bank charges for unauthorised overdrafts?’ Analysis of the results found that 68% viewed them negatively, with almost all comments mentioning that fees were either too high or unfair. A separate question found that 82% of unauthorised overdraft users thought their bank charges for unauthorised overdraft use were too high.

8.    Additional findings on unauthorised overdraft users who have used an unauthorised overdraft in the last 12 months:

·         More than half (57%) say that they run out of money every single month, a similar number to payday loan users (55%).

·         One in seven (15%) say they have considered taking out a payday loan due to worry over overdraft charges.

·         More than half (54%) say they have no household savings

·         A third (33%) say they have gone into an unauthorised overdraft as they felt they had no option

·         A third (32%) have been contacted by a debt collection company in the last 12 months, compared to 41% of payday loan users, 9% of all credit users

·         A third (31%) say they have sought debt advice in the last 12 months, compared to 29% of payday loan users and 7% of all credit users

·         One in seven (13%) have taken out a debt consolidation loan in the last 12 months, compared to 10% of payday loan users and 3% of all credit users

·         A third (34%) have in the last 12 months delayed a credit card payment until they could afford it, compared to 36% of payday loan users and 8% of all credit users

9.    Populus, on behalf of Which?, interviewed 4,157 GB adults online between the 10th and 12th January 2014. Data were weighted to be demographically representative of all GB adults. Populus is a member of the British Polling Council and abides by its rules.

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