Overdraft charges impossible to calculate

Which? calls on the Government to force banks to make it easier to compare the cost of running a current account to increase competition, as our new research reveals consumers can’t calculate unauthorised overdraft charges.

We asked consumers to work out the total cost of using an unauthorised overdraft at the 12 biggest banks’ main current accounts. We gave them a mock statement and asked them to calculate the overall cost by finding the overdraft charges on a bank’s website then working out any interest charged and any fixed charges, like monthly or daily fees or penalties for unpaid transactions. They got just 10 of the 72 calculations right between them.

Across almost all the banks, the overall cost was so difficult to work out that even a principal inspector of taxes only got one of his four calculations right, and a retired headteacher got his answers all wrong. It also took people 10 minutes on average to find the charges on the banks’ websites, considerably longer than the four minutes it took when we carried out this research two years ago.

Only six of the 18 volunteers thought that, based on doing the test, a typical consumer would be able to compare the charges.

Some banks have started to simplify charges, for example by capping fees, but this doesn’t necessarily make it easier for people to find the best account for them and can be more expensive in some cases.

Which? wants the Government to force banks to release the data they have about how customers use their accounts which can be used to develop comparison tools that would allow consumers to rank providers by cost based on their own personal needs and financial situation.

This is also vital to help increase competition in banking, especially as separate Which? research finds that the new seven day switching guarantee has got off to a slow start. In our survey, two-thirds (65%) had problems with their switch and a quarter (27%) said it took eight working days or more.

Which? executive director, Richard Lloyd, said:

“Consumers are faced with a myriad of complicated charges for using an unauthorised overdraft, and it’s virtually impossible for people to calculate and compare the cost of running a current account.

“It’s no wonder so few people switch between banks when you can’t easily compare prices. To boost competition we want the Government to make banks release data about how customers use their accounts so it’s easier for them to work out charges and rank providers by cost. With the new switching guarantee still experiencing teething problems, this is one catalyst that we believe would help shake up retail banking.”

Our survey of bank switchers found:

·         One in seven (15%) experienced delays with direct debits or standing orders not carried across to the new account.

·         One in ten (12%) did not receive a PIN before their old account was closed.

·         One in ten (10%) had the old account closed before the new one was opened.

Notes to editors: 

1.    To see the full magazine articles visit the downloads section.

2.    Bank charges: We sent a mock bank statement to 18 volunteers and asked them to calculate the cost of an unauthorised overdraft, disregarding any automatic free or cheap authorised overdraft granted for a limited period. We looked across the main current accounts of 12 of the biggest banks, with each of the 18 volunteers doing the calculation for between three and five banks. This meant that each bank was tested six times in total. We asked the volunteers to:

–      Find the information about unauthorised overdraft charges on each bank’s website and time how long it took them (a point was awarded if the volunteer found the charges in less than four minutes, the average time it took our volunteers last time);

–      Work out the cost of any interest charged for the overdraft, assuming the customer had not previously arranged an authorised overdraft with the bank;

–      Work out the cost of any fixed charges for the overdraft, such as usage charges and unpaid transaction fees;

–      Calculate the total cost of the overdraft, using the cost figures above.

We scored each bank out of six on each of these four items, giving a total possible score of 24. The tests for most banks were carried out from 8 to 15 November 2013, based on the information on their websites at the time. We tested First Direct on 25 and 26 November as it announced it would be scrapping its unpaid transaction fees from 24 November. HSBC did the same but hadn’t changed the information on its website by the time of our First Direct tests.

Full table of results:

bank charges

3.    Survey of switchers: To assess the new current account switching service, Which? commissioned two surveys, before and after launch of the new service. The first survey was carried out in August 2013, before the new service was launched and tracked 300 switchers under the old system. The second survey, in November 2013, charted the progress of 192 switchers under the new service. Both surveys assessed people’s experiences of the switching process from initial application with a new bank through the whole time taken to switch, capturing any problems along the way.

4.    The Government currently has Midata reserve powers under the Enterprise Act and Regulatory Reform Act 2013. Midata is a programme designed to give consumers access to their personal data in a portable and electronic format. This would allow consumers to better understand their own consumption behaviours and patterns, as well as make more informed or appropriate purchasing or consumption decisions. Current accounts are one of two areas of financial services that are explicitly named in the legislation. This means that the Secretary of State can require personal current account providers to provide customer data to consumers and specify the form it should take. Which? wants this data to be downloadable and released in a consistent manner across the industry to ensure that customers have anonymised, clear, and comprehensive personal usage data. This data can then be used to develop comparison tools that allow consumers to rank providers by cost based on their own personal needs.

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