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

Overdraft

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. 

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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
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