HIGH DEMAND FOR THE UK TO GO ONE STEP FURTHER THAN CMA RECOMMENDATIONS
New research by digital current account provider Ffrees1 has revealed that 85% of Brits would prefer it if banks did not offer unauthorised overdrafts.
When consumers in the UK have not agreed an authorised overdraft with their bank and spend more money than they have in their account, they may enter an unauthorised overdraft without being consulted.
Findings from the Office of Fair Trading (OFT)2 show that only three of the eight largest personal current account providers in the UK – Nationwide, NatWest and Barclays – allow consumers to opt out of an unauthorised overdraft facility without charge. Other banks and building societies either do not allow people to opt out at all, or only offer it for a fee.
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Alex Letts, Chief UnBanking Officer of Ffrees, said: “The latest Competition and Markets Authority (CMA) report 3 recommends a cap on monthly overdraft fees and stronger warnings for people who are about to go into an unauthorised overdraft. Our results suggest this does not go far enough, with consumers simply wanting to see the back of unauthorised overdrafts.
“85% of people in our independent survey stated that they would prefer it if they could not become overdrawn without agreeing to it. Where banks do allow account holders to opt out of their unauthorised overdraft, the process is unhelpful and costly.
“With the CMA stating that their proposal alone would save overdraft users an average of £140 – and ‘heavy’ users £260 if they switched accounts to avoid the fees – we think there is even more room to protect consumers from these unfair practices.” 4
Industry regulators have supported the demand for free opt-out overdrafts in recent years, with the OFT themselves unsuccessfully challenging the application of unauthorised overdraft fees in 2009.5 Even as recently as 2014, the CMA published an update, expressing dismay at the lack of progress the banks had made in this area.6
In the United States, a Supreme Court ruling on 4th April this year stated that unauthorised overdraft fees charged by the Wells Fargo bank were unlawful.7 The judge said the bank had “deceived its customers” and that they could not rely on customers having read the bank’s written policies.
Alex added: “Our research supports that of the CMA and goes to prove that consumers do not like the risk of becoming accidentally overdrawn and facing unexpected fees.
“For accounts that are advertised as free, the banks are wilfully charging, as they know most customers will make budgeting errors from time to time. It is a terrible paradox that the less well-off are subsidising the wealthier account holders. The whole narrative needs to be more about managing to avoid debt than drawing people into it.”