Banking News

With the announcement this week that the Financial Conduct Authority (FCA) will introduce a number of changes to make overdrafts fairer and easier to manage for borrowers, Moneyfacts.co.uk has examined data regarding unarranged overdraft fees. Our research discovered that consumers who use an unarranged overdraft by as little as £10 for two days could be charged as much as £25. Four providers across 11 current accounts would apply a charge in this example, of which two banks would charge more than the original unarranged overdraft amount:

Table 1 Current Accounts charging a fee for an unarranged overdraft of £10 for two days

Borrowers who go over their limit by £100 for five days would see 19 providers charge them a fee, with an average cost of £32.98:

Table 2 Current Accounts charging a fee for an unarranged overdraft of £100 for five days

Of the 142 accounts reviewed by Moneyfacts.co.uk, 90 accounts from 27 providers would not charge a fee at all in this scenario.

Michelle Monck, finance expert at Moneyfacts.co.uk, said “Our research shows that consumers can end up paying a high penalty for even the smallest unarranged overdraft. Banks and building societies can vary their fee structure depending on the specific account you have with them. So, consumers should regularly review their current account fees and check if switching to another account with the same provider or to a new provider who might provide them with a better safety net.  From April 2020, new rules come into force that will remove fixed fees from overdrafts and stop unarranged overdrafts being priced at a higher rate.  This should mean that some of the very highest fees shown in our research are limited in the future.”

One in 10 UK adults, just over five million people, are choosing to live a largely cashless lifestyle, while debit cards continue to be the most popular payment method according to UK Finance’s latest Payment Markets Report.

The report states that, having overtaken cash in 2017, debit cards remained the most popular payment method in 2018, accounting for nearly 40% of all payments. In addition to this, nearly the entire adult UK population (98%) now own a debit card. It also forecasts that by 2024, debit cards will be used for half of all payments.

The rise in debit card use has been in part contributed to the growth in contactless payments, which increased to 7.4bn in 2018, an increase of 31% on the previous year. Overall 69% of the UK adult population uses contactless payments and it is not just younger people who have embraced this technology, as over three-fifths (61%) of over-65s made contactless payments in 2018, which is an increase of 50% from 2017.

As part of its new procedure to help victims of financial abuse regain control of their finances, HSBC UK has introduced an untraceable sort code.

This introduction has been made to help victims of financial abuse who may have had personal items such as their bank card or account statements taken from them. Customers who are concerned an abuser could use these details to find out their location can request a national sort code that cannot be traced to a particular bank branch.

This is just one of several new processes the bank is introducing this year to help victims of financial abuse. Other processes it is introducing include providing training to staff on how to spot the signs of financial abuse and providing appropriate support to victims, as well as creating a specialist team to take calls from customers who are in vulnerable circumstances.

Tracie Pearce, commercial director at HSBC UK, said: “Victims of financial abuse have unique needs when it comes to separating and managing their finances.

“From opening a separate account with a national sort code to help conceal their location, to appointing a third party such as a representative from a refuge to deal with their finances on their behalf. Our financial abuse procedure will ensure that whenever a customer walks into our branch or picks up the phone to us, they will receive the specialist care they need.”

The Financial Conduct Authority (FCA) has announced a host of changes today to make overdrafts fairer and easier to manage. The summary of changes includes banning fixed fees, such as daily or monthly charges for using an overdraft facility and an end to higher pricing for unarranged versus arranged overdrafts.

Overdrafts cost the UK public £2.4bn in 2017 and more than 50% of banks’ unarranged overdraft fees came from just 1.5% of customers in 2016. In some cases, overdraft fees can be 10 times as high as fees for payday loans.

Further reforms published today, include the requirement for banks and building societies to help customers compare overdrafts by using an APR when advertising arranged overdrafts, pricing overdrafts more simply using an annual interest rate and ensuring refused payment fees reasonably reflect the costs of declining the actual payments.

The regulator will also require overdraft providers to identify customers in financial difficulty and develop a strategy to help these customers reduce repeat overdraft use.

Comprehensive research by the FCA with consumers showed they also wanted the costs of an overdraft shown in pounds and pence alongside the APR and interest rate. UK Finance – the trade body that represents the financial sector – has agreed to implement this alongside the other FCA requirements.

Andrew Bailey, chief executive of the FCA, said: “Our radical package of remedies will make overdrafts fairer, simpler and easier to manage. We are simplifying and standardising the way banks charge for overdrafts. Following our changes, we expect the typical cost of borrowing £100 through an unarranged overdraft to drop from £5 a day to less than 20p a day.

“The decisive action we are taking today will give greater protections to millions of people who use an overdraft, particularly the most vulnerable.”

The new rules come into force 6 April 2020, apart from the guidance on refused payment fees, which comes into force immediately.