Abbey charges unfair?

noh

BlondBoy wrote: »

In my opinion, proportionality is entirely relevant - as it is in other borrowing transactions, so why not that? If I have an unsecured loan or overdraft for £5,000, that service will cost me less than if it were for £100,000.

To take argument to the extreme, shouldn't flights to Sydney cost the same as flights to Paris? Same service!

If you had an agreed overdraft of £5000 or £100000 the price for the service would be the same usually £0. The amount of interest you pay would be different.
In the case of the unauthorised overdraft there is still interest to pay.

Nigel

noh

masonic wrote: »

I'm confused here. If you were already £20 overdrawn, then Abbey had to pay 4 direct debits, weren't you a lot more than £20 overdrawn after that?

The original posters situation was that they had 4 seperate transactions that took them into the red totalling approx £20.

Nigel

BlondBoy

Al_Mac wrote: »

Very different, Paris takes a couple of hours and Sydney takes 24 and at least one stop, so very different.

A simple if A < B then Charge £30, is always the same.

I know it's a ludicrous example, but I'm trying to make the point of proportionality, which is exactly what you're saying there. I believe £20 overdrawn is very different to, say, £500 overdrawn in the same way Paris is closer than Sydney. Yet the cost to the bank is largely similar in both cases, I think - happy to be proven wrong on that by those who know more, mind.

To be more serious, the problem is the perceived value of the 'service'. If the bank is good enough to temporarily bail me out to the tune of £500, I can see the value of paying £140 for it if I'm in Queer Street. But there's no way it's worth £140 for the kindness of letting £20 go for a couple of days. Although I've not no connection to them, HSBCs charge structure does seem eminently more sensible - particularly the part that says you won't be charged more than the value of the unauthorised overdraft. That's all.

noh wrote: »

If you had an agreed overdraft of £5000 or £100000 the price for the service would be the same usually £0. The amount of interest you pay would be different.
In the case of the unauthorised overdraft there is still interest to pay.

Nigel

Surely the service in that case only costs £0 if the interest is at the Bank of England base rate? Anything above that is surely, ipso facto, a charge for using the service? You borrow more, you pay more total interest over the same period - qed a higher charge for using a larger service?

noh

BlondBoy wrote: »

. I believe £20 overdrawn is very different to, say, £500 overdrawn in the same way Paris is closer than Sydney. Yet the cost to the bank is largely similar in both cases, I think - happy to be proven wrong on that by those who know more, mind.....................

The cost to the bank to provide the service is the same in both cases thats why they charge the same! Interest is also paid on the amount at the same rate but of course you pay a larger overall amount on a bigger overdraft.
The cost to the airline to fly a plane to Paris is very different to the cost of flying one to Sydney thats why they charge different prices.

Nigel

Dylanwing

The cost to the bank to provide the service is the same in both cases thats why they charge the same!

But has it not been estimated that it only actually costs the Bank about £2 per transaction? What is the justification for the other £28?
I think we can agree to disagree, and eventually, the Courts can decide what is fair and reasonable. Or maybe the Shabbey will be kind and refund most of it.

noh

Dylanwing wrote: »

But has it not been estimated that it only actually costs the Bank about £2 per transaction? What is the justification for the other £28?
I think we can agree to disagree, and eventually, the Courts can decide what is fair and reasonable. Or maybe the Shabbey will be kind and refund most of it.

I do agree that the fairness of the abosolute level of the charge has yet to be decided.
BlondBoy was originally suggesting that the charge should be set at different levels proportionate to the amount of overdraft. My arguement is that the cost to the bank, to provide the service, is the same whatever the size of the overdraft, therefore they are justified in charging the same amount for an overdraft of £20 as for one of £10000.


Nigel

masonic

BlondBoy wrote: »

Surely the service in that case only costs £0 if the interest is at the Bank of England base rate? Anything above that is surely, ipso facto, a charge for using the service? You borrow more, you pay more total interest over the same period - qed a higher charge for using a larger service?

BlondBoy, to put it in slightly different terms, consider the initial charge as being for the 'risk assessment' the bank has to do in order to decide whether to give you an unauthorised overdraft or bounce the payment and also the cost of informing you about it. I'm not quite sure how banks would go about explaining the subsequent penalty fees for simply remaining in unauthorised overdraft - in that situation, as you suggest, collecting fees through a higher interest rate rather than fixed charges would seem to make more sense.

BlondBoy

To go back to the OP's question - is charging £140 for a £20 unauthorised OD fair? I'd argue it isn't. Is charging £140 for an unauthorised overdraft of £500 fair? Arguably it may be - more money has been made available, the bank's exposure is larger so a commensurately higher fee for the service is understandable. The more money you borrow, the more you pay to do so. Like a loan, mortgage etc.

I do understand Masonics, Nohs and Al Mac's point, genuinely I do. And sure. the bank's T&Cs allow them to make a flat rate charge. But you can't have it both ways, as the banks have tried to do and justify it as a service charge if it's unrelated to the size and value of the service. In every other commercial transaction I can think of, price is related to value (whether perceived or actual - either's fine).

There's no way I can see that £140 charge for £20 is related to either value or cost of providing the service, therefore it's got to be unfair.

In a functioning free market, you'd pay your money and take your choice and move to a provider that offers you a better price and value combination. But in this sector, it doesn't exist. HSBC's move with Fairer Fees as I mentioned above is the closest you get to it and I welcome that. Would almost be enough for me to move there if I were getting persistently clobbered elsewhere (mercifully, I'm not).

If someone is persistently going hundreds of pounds over, spending money they don't have, well that's a different matter. But £140 for £20? How can that be fair? Really?

noh

I think the problem here is what you consider to be the service they are charging for.
I understand the charge to be for, as masonic said, "the 'risk assessment' the bank has to do in order to decide whether to give you an unauthorised overdraft or bounce the payment and also the cost of informing you about it." The cost of carrying this out is the same whatever the amount involved.
I dont see how the banks are having it both ways it is a fee for a service.
Its very similar to the standing charge I pay for my gas supply I pay the same standing charge wether I use 1BTU or 100000 BTU.
Taking your example of mortgages the booking fee you pay for a £25000 loan would be the same as the fee you would pay for a £1000000 loan from the same provider.
Im not arguing about the fairness of the level of the fee just that for it to be a fee for a service it can only be at one fixed amount as the service provided is the same whatever the amount of the overdraft.

Nigel

masonic

BlondBoy wrote: »

There's no way I can see that £140 charge for £20 is related to either value or cost of providing the service, therefore it's got to be unfair.

You seem to me mixing up two separate issues here.

The first is that the bank charges a fixed fee for "arranging" an unauthorised overdraft. IMHO, that is not unfair in and of itself, since the same amount of work needs to be done regardless of the overdraft size.

The second issue, which is the one that there is currently so much speculation over, is that the fee charged is disproportionately high. That is, the fee does not reflect the cost to the bank. If the fee actually reflected the cost the bank incurred in providing the the service, but it was still a fixed value fee, would you still say it was unfair?