Competition authority tells banks they need to be clearer on overdraft fees
(23/05/16) Stuck in your overdraft? Watch out – You might get charged big fees without warning
Overdrafts. They’re hardly ideal things to dip into, but they do have their place. And many of us need them from time to time.
Yet the Competition and Markets Authority (CMA) says banks should do more to help customers be aware of the risks of overdrafts. It wants them to cap fees on unarranged overdrafts and do more to warn customers before they hit the red in their accounts.
The CMA’s conclusion following an 18-month investigation is that banks could save their customer more than £1bn between now and 2021.
Not enough healthy competition?
The CMA also suggested that competition between banks in the retail sector is weak. This leads to a risk of companies taking their customers for granted. In fact, the report noted that 60% of customers stayed with the same bank for more than a decade, and 90% of business customers get their loans from banks where they have their own current account.
So what is the CMA suggesting?
- Better automatic alerting when a customer is about to go overdrawn, for eg by text or push notification.
- Banks should do more to make sure customers o check they are getting good value - if interest rates change, for example, the onus should be on banks to let their customers know
- More switchability and connectivity, using more, better modern technology such as apps with inbuilt comparisons for switching
- Loan costs need to be more transparent, especially fro businesses
More and further
The question is whether the CMA has been strong enough. For example, some banks already cap overdraft fees – Halifax tops out at £100 per month while the maximum for a Barclays overdraft is £35
When Moneyfacts counted up the average charges for an unauthorised overdraft, it came out a £57.50 per month
At that average fee, that could add up to £690. And don’t forget daily interest that’s charged on top of that, which comes out at an average annual rate of 12.85%. Since 2014, according to the CMA, retail banks in the UK have made a whopping £1.2bn on charges like these since 2014.
Alasdair Smith, chair of the CMA's Retail Banking Investigation, said on Radio 4: "For too long, banks have been able to sit back and not work hard enough for their personal and small business customers."
"The banking market is not working well for customers or for small businesses at the moment, primarily because it's very hard for customers to work out what their bank really costs them."
So what do you if you want to complain about an overdraft?
Complaining to the Financial Ombudsman
If you’re thinking about complaining to the Financial Ombudsman Service, you first need to approach the bank, insurer or financial service provider.
Before you take a complaint to the Financial Ombudsman Service, make sure you raise your issue with the company you have a problem with. They need to be given the opportunity to resolve your issue.
You must wait eight weeks before escalating your complaint to the ombudsman, but the ombudsman will contact the business about your complaint and ask them to deal with it on your behalf if you don’t wish to raise the complaint with the company directly.
Once you’ve waited eight weeks, then you can go to the Financial Ombudsman Service
Helpful hints when making a complaint about finance
- Get your complaint in writing - this is the easiest way of making sure it gets recorded properly
- If you do need to make a phone call, Resolver can record it and store it for you in your online case file.
- Record as many details as possible - who you speak to, their job titles, the dates and times of your calls with them. Resolver can do this for you, but it’s worth making the effort to record details yourself, too.
- Be polite. You might well be really frustrated and irritated about the service you’ve received, but it’s important to keep calm, especially if you’re complaining to the Financial Ombudsman - effectively a third party that has had nothing to do with your complaint other than an intent to solve it.