Overdraft overhaul doesn't go far enough, warns Treasury Committee
A report by the competition watchdog ordering monthly unarranged overdraft fees to be capped has been criticised by the Treasury Committee for not going far enough.
The Treasury Committee will be asking the Competition and Markets Authority (CMA) to justify the conclusions outlined in its final retail banking report in the autumn.
The CMA last month published its eagerly anticipated final report into the retail banking market, which – alongside other orders – outlined measures designed to help the 25% of personal current account customers who often end up with an unarranged overdraft.
The report found that banks make £1.2 billion a year out of unarranged overdraft charges, which are usually upwards of £5 a day (check out the table below for details of rates charged by individual banks).
However, Treasury Committee chairman and Conservative MP Andrew Tyrie, who has written to the chief executives of 13 banks asking them to provide information about their charges, has today claimed the remedies proposed in the CMA report "don't appear to be robust enough to deal with this serious problem".
Labour MP Rachel Reeves, a member of the Treasury Committee, added that progress can only be made if consumers know what they're being charged by their banks and that currently "customers don't stand a chance of being able to identify the best deal".
For help managing your money, check out our Cut Overdraft Costs and Budget Planner guides. Also see Best Bank Accounts.
What were the CMA remedies for addressing unarranged overdraft fees?
The CMA's final report called for the following measures to be introduced:
From July 2017 banks will have to set a maximum monthly charge for unarranged overdrafts, and tell customers about it. This maximum charge will cover all unarranged overdraft charges including debit interest and unpaid item fees. The CMA considered setting an upper limit for this maximum overdraft charge but decided not to do so, arguing that having the charge set by banks rather than the regulator will mean banks themselves remain accountable for their overdraft charges.
From January 2018 banks will be required to provide overdraft alerts and grace periods for customers who've slipped into an unarranged overdraft. Research by regulator the Financial Conduct Authority has shown that this kind of alert, when combined with mobile banking, can significantly reduce overdraft charges.
How has the Treasury Committee responded?
On 7 July, Tyrie wrote to the chief executives of 13 banks, asking for info about their charges – including paid and unpaid – on authorised and unauthorised overdrafts, for each type of personal banking account they offer.
Commenting on his correspondence with the banks, Tyrie said: "Some customers are being charged very high rates for using their overdrafts, both arranged and unarranged. Charges can also be very complex. The recent CMA report found that many customers often aren't even aware of how frequently, or for how long, they are using their overdrafts.
"The CMA's proposed remedies, which include a self-regulated maximum monthly charge, don't appear robust enough to deal with this serious problem.
"Better competition can bring choice and better results for customers. This can only happen if consumers know what they are being charged, which they don't at the moment."
Reeves added: "The report from the CMA last month was a missed opportunity, and did not go nearly far enough to tackle excessive overdraft charges.
"What these responses from the banks now show is just how complex and confusing the charge structures are for overdrafts – customers don't stand a chance of being able to identify the best deal.
"The ball is now firmly in the FCA's court. It must step up to the challenge and take necessary action, for example by imposing a monthly maximum charge on overdrafts, to ensure that those who are most financially vulnerable are protected."
What do the major banks charge for arranged and unarranged overdrafts?
We've crunched the numbers on arranged and unarranged overdraft charges for mainstream current accounts offered by seven of the UK's biggest banks...
The cost of arranged and unarranged overdrafts
| Bank (Account) (1) | Arranged overdraft charge | Unarranged overdraft charge |
|---|---|---|
| Barclays (Bank Account) | £15 buffer, then charges are tiered. Up to £1k: 75p/day. £1-2k: £1.50/day. Over £2k: £3/day | No unarranged overdraft, but its 'Emergency Borrowing' feature has a £15 buffer, then is £5/day (max £35/mth – if you stay in Emergency Borrowing for more than 7 days, you'll be charged the arranged overdraft fee for any further days). £8 unpaid item fee (max one/day). You'll only pay one fee per day, whichever is highest. |
| Halifax (Reward) | £50 buffer, then charges are tiered. Up to £2k: £1/day. £2k-£2,999: £2/day. Over £3k: £3/day | £5/day |
| HSBC (Advance) | 0% for the first six months if you switch, then 17.9% EAR interest | £10 buffer, then 17.9% EAR interest, plus £5/day charge each day you're overdrawn (max £80/month) |
| Lloyds (Club Lloyds) | Up to £100 fee-free, then 19.89% EAR interest + £6/mth fee | £10 buffer, then 19.89% EAR interest + £5/day under £25, £10/day for £25+ (max £80/mth), £10 unpaid item fee (max three/day) + £6/mth fee. |
| Nationwide (FlexDirect) | Year one: 0%; years two+: £10 buffer, then 50p/day | £10 buffer, then £5/day (max £60/mth), £5 paid/unpaid item fee (max £35/mth) |
| NatWest/RBS (Reward) | £10 buffer, then £6/month fee, plus 19.89% EAR interest | £10 buffer, then £6/day fee (max charges of £90 per month) plus £6 unpaid item fee (max charges of £60 per month) |
| Santander (123) | 0% for four months after switching, then £12 buffer and £1/day | £12 buffer then £6/day (max £95/mth) |
(1) Other accounts may have different overdraft terms. | ||
Additional reporting by Rosie Bannister.
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21 January 2025
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