unplanned overdraft Lloyds

VanessaDeagan

@innovate - thank you very much for your reply and for correcting me on the banking vernacular. I will certainly do much more homework prior to lodging a complaint with the Financial Ombudsman and then consulting a lawyer.

I understand perfectly clear what you're saying in regards to your comments regarding some of the points I have made, but am not convinced that lodging a complaint about this issue would be futile, and I still feel it necessary to draw attention to this issue (as it is an important issue, and in my humble opinion, a very serious one).

In regards to the link you provided that you claim list the correct rates for the correct acronyms in the context of overdrafts: the calculations used are misleading, and I find it dishonest and disingenuous for a bank to claim that the rates for planned and unplanned overdrafts are exactly the same. The "EAR" calculation is useless in the context of unplanned overdraft rates as it does not take into consideration the largest component of an unplanned overdraft rate the customer must repay - fees and charges!

"EAR is the Equivalent Annual Rate. This is the actual annual rate of an overdraft. It doesn't take into account other fees and charges."

As you yourself have mentioned, EAR's are used for "saving accounts", but we're talking about "unplanned overdrafts". While unplanned overdrafts rates are certainly coupled with savings accounts, they have nothing at all to do with the savings account interest rates per se.

So, the banks (Lloyds TSB) are using a calculation (EAR) that is used to "more easily see what return you can expect from your savings over time" (definition from the link you provided me) to describe the rate of interest you must pay for an "unplanned overdraft". This is simply wrong.

So my original point (while I may not have understood the banking terms used) remains. There is no REALISTIC AND USEFUL figure given anywhere (something similar to an APR) that describes the rate of an unplanned overdraft.

My point also remains about why this is an "opt-out-for-£10-per-month" service instead of an "opt-in-if-you-want-to-be-able-to-spend-money-you-don't-have" service.

I will start a Facebook page this weekend to keep people updated about this issue.

VanessaDeagan

And just to put things into context using the APR calculation (even if it's the "wrong" formula to use because the banks say so, it's one that most folks recognize and understand):

Using £10 per day for 8 days in a hypothetical unplanned overdraft scenario where the overdraft is retired in 1 month (people are usually paid monthly) and there is 0% interest:

A £20 unauthorised overdraft: 4800.0000 % APR.
A £100 unauthorised overdraft: 960.0000 % APR.
A £300 unauthorised overdraft: 320.0000 % APR.
A £500 unauthorised overdraft: 192.0000 % APR.
A £1000 unauthorised overdraft: 96.0000 % APR.
A £1200 unauthorised overdraft: 80.0000 % APR.

(etc...)

innovate

Literally all banks have

1. fees and/or charges for overdrafts
2. interest rates for overdrafts (some of these might be zero for given amounts/ circumstances)

It is not sensible to express both of these in a single %age number because the relative %age of the fee-element becomes lower the higher the overdraft is.

You might not agree with these charges, but as long as they are clearly laid out - and it's probably fair to say, they all are (certainly in the case of Lloyds and some others I have looked at) - you do not stand any chance to get them changed.

Worth remembering that it is a consumer choice to take an overdraft on offer (whether it is arranged or unarranged) - nobody forces anyone to make use of it. Like with anything else, it is the consumer's duty to check that the goods/service is right for them. It is not the bank's fault if people do not read or understand the T&Cs.

VanessaDeagan

@innovate:

You are not addressing the points I have raised and it appears you are trying to portray me as a disgruntled customer who has been "stung" by bank fees and charges and who disagrees with bank fees and charges. Nothing could be further from the truth. Why did you mention the two numbered points? They have nothing to do with the discussion.

It is not sensible to express both of these in a single %age number because the relative %age of the fee-element becomes lower the higher the overdraft is.

Why? It is the reality of the situation. I'm just calling it as it is. The example I gave was a hypothetical one. However, in the real world, the more you're overdrawn, the cheaper it is for that "form" of credit (the "unauthorised overdraft"). So when you say it's not "sensible", what exactly do you mean? Could you please elaborate?

...You might not agree with these charges...

I don't care about the charges and I certainly have no desire to try and get banks to change them. I couldn't care less if they charged their customers £100 per day for being 5p over their limit. What I disagree with is the way these charges are represented to customers. Again, I repeat, using the EAR calculation to describe overdraft rates is misleading and disingenuous. This is the first thing I have an issue with.

Using the EAR figures to describe unauthorised overdraft rates does not make is clear what you're really repaying. A percentage figure is required that includes all fees and charges, otherwise it's a meaningless number that, if anything, makes things more unclear (it hides the true cost of the unauthorised overdraft).

Worth remembering that it is a consumer choice

I strongly disagree with you. The customer doesn't have a choice when it concerns unauthorised overdrafts - they're automatically opted-in to this "unauthorised overdraft" scheme, and must pay £10 per month to opt-out. This isn't much of a "choice" now, is it? What could possibly warrant £10 per month just to avoid falling victim to the "unauthorised overdraft" charges? Why is it banks will usually cap/limit an unauthorised overdraft at around £300 anyway - why not just make it £0? One of my arguments is that it should be the customer's choice - the choice to choose whether or not they want their account to be able to use an unauthorised overdraft facility. No matter how you word it, I'm calling it as I see it. It defies common sense and logic to put the onus on the customer to ensure they don't spend money they do not have.

Like with anything else, it is the consumer's duty to check that the goods/service is right for them.

You are right and I agree with you fully, but this is impossible for the customer to make an informed decision when the information is buried and hidden behind complicated banking acronyms and vernaculars (and complicated calculations/mathematics). The simplest approach would be to include in the terms and conditions a single percentage that describes the rate of an unauthorised overdraft - something similar to an APR (if not the APR formula itself). To not include bank charges and fees when presenting unauthorised overdraft fees to customers is ludicrous.

It is not the bank's fault if people do not read or understand the T&Cs

- I beg to differ (for the reasons I have outlined in this and previous posts above).

innovate

Last response from me to this debate, it's not good use of my time.

VanessaDeagan wrote: »

@innovate:

You are not addressing the points I have raised

I was just trying to help you understand you didn't have your facts quite right, and why your "single %age" idea is flawed.

VanessaDeagan wrote: »

I couldn't care less if they charged their customers £100 per day for being 5p over their limit.

Funnily enough, I would do if they did because there comes a point where things become unjustifiable.

VanessaDeagan wrote: »

What I disagree with is the way these charges are represented to customers. Again, I repeat, using the EAR calculation to describe overdraft rates is misleading and disingenuous.

It's only "a problem" because you ignore that for (at least some, incl at Lloyds) overdrafts, there are

1. fees/charges
2. interest

Do you complain to your utility company because your bill, consisting of a standing charge and prices per unit are not expressed as a price per unit? Or to your telephone provider because your bill is not expressed as standing charge plus units (at varying prices) used? The concept of e.g. Lloyds's overdraft pricing is no different than the pricing of a utility or telephone company.

VanessaDeagan wrote: »

Using the EAR .............. (it hides the true cost of the unauthorised overdraft).

I agree with you, the EAR does not show the true cost of the entire overdraft - - but then, apart from you, nobody has claimed it would. As I have said twice now, there are 2 elements to the total charge.

VanessaDeagan wrote: »

Why is it banks will usually cap/limit an unauthorised overdraft at around £300 anyway - why not just make it £0?

Because people would immediately be up in arms because you couldn't get money from the ATM, pay some billl, pay some DD, when they "only needed a few quid more than the arranged overdraft".

If you want a zero overdraft, you can have that too. I have about a dozen current accounts, none of which has an overdraft facility. I never go near zero, so I always have a buffer. It's my own money, not borrowed money, and the charge is zero (if I ignore that fact that I could perhaps get a few pennies interest somewhere else)

VanessaDeagan wrote: »

It defies common sense and logic to put the onus on the customer to ensure they don't spend money they do not have.

You cannot be serious.

VanessaDeagan wrote: »

The simplest approach would be to include in the terms and conditions a single percentage that describes the rate of an unauthorised overdraft - something similar to an APR (if not the APR formula itself). To not include bank charges and fees when presenting unauthorised overdraft fees to customers is ludicrous.

What is ludicrous is your suggestion that expressing the 2 cost elements in an overdraft as a single percentage figure would be simpler. You would need to have a huge list of different overdraft amounts, and different durations of the overdraft, each with a different percentage against it. It would of course be easy enough to program such a huge long list, but I'd put it to you that people who can't even read the current terms wouldn't read that list, either. First thing they'd do is complain about the huge long list.

Also, all the costs are clearly stated on the website. If it is too hard to figure out the costs, there is always the option to make a huge effort not to need an overdraft for starters.

An overdraft, and specifically an unauthorised overdraft, should never be a convenience. It should always be a "scary" thing to have - and the sooner people understand that overdrafts are something best not to have, the better.

dalesrider

VanessaDeagan wrote: »

The customer doesn't have a choice when it concerns unauthorised overdrafts .

A little scenario for you.

I have £200 in my account and a £100 o/d.

I need to pay £500 to get my car recovered and fixed @ 08:00.

Now so long as I get £200 credit into my account by 16:30 ( i think with lloyds( other banks are end of day))
Which will mean. I wont go into a unplanned o/d.

So are you saying that in no way you should be able to exceed your limits. In other words the transaction would be declined.

Because if you are that is going against the way people want to bank.

people who say they don't know how much they have in their account before spending need to take a long hard look at themselves when they get charges for going past their limits. Banks provide no ends of ways of checking your balance. From online banking to a mini statement at a atm..
So there is no excuse for not checking before splurging the cash on that must have waste of money.

With flat rate charges per day. Why do you need to know any APR etc.
To me a simple statement that its £1.00 a day is a lot easier to understand that 22.4% APR when it comes to working out how much I might get charges for going overlimit. Either planed or unplanned.

Banks etc get hammered for not making things easy to understand. When they do. They then get people like you who try to reverse eveything people have fought hard for.... Even though it does not effect you.

psychic_teabag

I think I agree with Vanessa here.

innovate wrote: »

Because people would immediately be up in arms because you couldn't get money from the ATM, pay some billl, pay some DD, when they "only needed a few quid more than the arranged overdraft".

So why not just make it an option on the account. "What cap would you like on unauthorized spending ?" Then you can choose for it to be 0, or you can choose to go "only a few quid overdrawn" and then suffer pretty severe charges as a consequence. OP has paid off his "few quid" but is now stuck overdrawn because of those penalties.

It seems to have to pay a monthly fee to get that, which does seem to be the wrong way round.

I assume that if you do have D/D's refused due to lack of funds, you'll end up getting charged for those anyway, so you can't win. Just depends on whether those charges are higher than the per-day-of-overdraft charges.

If you want a zero overdraft, you can have that too. I have about a dozen current accounts, none of which has an overdraft facility. I never go near zero, so I always have a buffer. It's my own money, not borrowed money, and the charge is zero (if I ignore that fact that I could perhaps get a few pennies interest somewhere else)

But is that the same ? I too have lots of current accounts with no arranged overdrafts, but (it sounds like) the banks will still let me go overdrawn and charge penalties, rather than just block payments which would bring the balance below zero. I don't know for sure - it's a very long time since I've ever actually gone overdrawn.

MnemonicCarrier

I agree with Vanessa too. There seem to be a couple of folks here who denigrate her points/arguments using "it's the customer's fault for being irresponsible" type arguments. I can see her point of view - why allow customers to be put in such a predicament in the first place? (I think we all know the answer to that one - it generates large profits margins - making a possible £80 in 8 days for someone being £10.01 in an unplanned overdraft - WOW!).

VanessaDeagan

@dalesrider -

Banks etc get hammered for not making things easy to understand. When they do. They then get people like you who try to reverse eveything people have fought hard for.... Even though it does not effect you.

I am not trying to reverse anything people have "fought so hard for". I'll try to make this as clear as possible:

1. Banks could use an "opt-in" method, whereby customers would have to explicitly agree to have an unauthorised overdraft facility.
2. Banks could (and should) offer an opt-out option completely free of charge.

people who say they don't know how much they have in their account before spending need to take a long hard look at themselves when they get charges for going past their limits.

Whatever people say is irrelevant to this discussion/debate/argument/thread (whatever you want to call it). Unlike you, I'm not trying to demonize or criticize or judge anyone who has happened to go into an unauthorised overdraft (just as I do not judge those who are grammatically challenged, don't know how to use punctuation or a spell checker) . I'm simply suggesting two things:

1. The charges should be made more clearer (there is a cost involved, and the way the banks present this cost is confusing at best).

2. Having the ability to exceed your overdraft limit should be something the customer explicitly asks for and agrees to (or something that the customer can opt-out of for free - not for £120 a year for the "Control" facility).

If the banks didn't forcibly provide people with the ability to use an unauthorised overdraft, then these bad wrong-doers wouldn't have to (as you put it) "...take a long hard look at themselves...".

As for your use of the word "limit", let's take a look at the definition of that word:

"Limit: the final, utmost, or furthest boundary or point as to extent, amount, continuance, procedure etc."

It appears you have stumbled upon an oxymoron ("...going past their limits.").

Anyway, thanks for providing your scenario. It's awesome, I can see why unauthorised overdrafts are so necessary, how stupid people must be if they happen to trigger an unauthorised overdraft, and I take back everything I have said in this thread about these unauthorised overdrafts! (<-- I'm being sarcastic).

@innovate - thank you for your contribution in this thread and giving me clarity about the unauthorised overdraft situation - I now know what approach I must take .

An overdraft, and specifically an unauthorised overdraft, should never be a convenience. It should always be a "scary" thing to have - and the sooner people understand that overdrafts are something best not to have, the better.

I couldn't agree with you more!! I don't understand then, why you disagree with me when I suggest that an overdraft facility should be something customers should explicitly have to opt-in to?! This is what I'm questioning - why do banks forcibly give you an overdraft facility (unauthorised overdraft facility) without you asking for it, and only allow you to remove this by paying £120 per year?

I still don't know the best way to represent overdraft fees, but one thing I'm certain of, it's definitely not using the EAR calculation (doesn't tell the entire story unless you add "EAR of X% plus £10 per day for the first 8 days).

@MnemonicCarrier and psychic teabag - thank you! . Whenever I come across something like this, I try my best to take "self" out of the equation so I can try view things in an objective manner - not always successful, but I try. It's always encouraging when level headed folks pitch in (especially when they agree with me ).

MoneySaverLog

Where else would the bank make money. No keep unauthorised and authorised overdrafts, if you use them then the bank is well within their rights to charge for them.

If they did a free opt out then they would have to make up the money elsewhere probably by charging for each account. No keep in credit banking free and let those who don't budget and live within their credit balance pay the price.