Fixed daily and monthly overdraft fees to be banned - MSE News

Bonniepurple

smallbiznewbie wrote: »

So it's not due to extreme poverty and the need to pay for electricity? Or immaturity? Or mental illness? Or a simple inability to cope with life? Or a sudden family emergency that has to be dealt with immediately? Or alcoholism? Or forgetting about the small purchase you made last week? Or simply a mistake?



I see SO many of these types of answers that basically say, 'I never go overdrawn...' Just for once I'm not going to bite my tongue... but I am being really, really polite.

Or Tax Credits counting some income twice, then, based on their fault, deciding that you were overpaid by £820 and therefore payments have been halved without warning....

I have an overdraft. I’d like not to, but the reality of modern life as a disabled person means that I need to use it.

Paul_Herring

Paul_Herring wrote: »

Are you saying the majority of all regular uses of overdrafts are entirely attributable to those things?

At least some of those are one-off things (emergency, forgetting, mistakes.)

https://www.fca.org.uk/publication/research/consumer-research-on-overdrafts.pdf

Overdraft use varied widely across thesample.Some were using overdrafts in the way they were intended: short term, emergency, unplanned, infrequent, often smaller amounts to cover mishaps or shortfalls.

[...]

Consumer research on overdrafts report -March 2018 However,many were habitual in their behaviour, often using high amounts,regularly,for longer time periods, and without beingaware or thinking aboutthe costs or longer term implications of living beyond their means. These individuals were more inclined to seetheiroverdraft as an extension of their own money,rather than borrowing, perpetuatingthese habits and behaviours.

[...]

When asked in the pre-session questionnaire whether they agreed or disagreed with the statement: ‘I think of my overdraft as a form of debt’, less than one in five of the sample agreed.

[...]
5.5.1 Indulgers’ overdraft behaviour

Indulgers tend to see their arranged overdraft as a ‘perk’ of their current account and some go asfar as describingit as ‘free money’, especially if their relationship with overdrafts started during their time as a student. Overdraft use is typically normalised and ingrained with many using their overdraft for higher amounts and longer time periods, and with littles ense of concern.

Indulgers tend to not feel they are doing anything wrong, as the bank is tacitly condoning their overdraft use by allowing them to act in this way. This affect is compounded as many of their friends and peers appear to do the same, meaning there are fewc hecks or balances, or external influences to question or challenge their behaviour.

The overdraft charges, where known,feel minimal or inconsequential, especially in comparison to their ‘spending high’ and for habitual users the cost is calculated into their spending,it simply becomes another bill or direct debit that they factor into their monthly outgoings.

In some cases, overdrafts can be packaged alongside other benefits as part of the personal current account and this can encourage their use,as customers can feel they are paying for the facility and should get the most out of it

msallen

Consumerist wrote: »

I don't accept the argument that "interest" rates are too difficult to understand

Have you read some of the inane questions that get asked on here ?

Takmon

smallbiznewbie wrote: »

So it's not due to extreme poverty and the need to pay for electricity? Or immaturity? Or mental illness? Or a simple inability to cope with life? Or a sudden family emergency that has to be dealt with immediately? Or alcoholism? Or forgetting about the small purchase you made last week? Or simply a mistake?

I see SO many of these types of answers that basically say, 'I never go overdrawn...' Just for once I'm not going to bite my tongue... but I am being really, really polite.

So you think that if someone has an issue where they are unable to manage their money and pay all their bills the solution is to start borrowing using an overdraft that they may never be able to pay back?

If someone is in that situation then they need to get help before they start going into their overdraft. I know someone who struggled with money for various reasons. and borrowing up to the limit of an overdraft certainly did not help them it just delayed the inevitable when they had to get help. So when they finally did get help they had thousands of pounds of extra debt than they would have without the overdraft you think is so useful.

The simple fact is that if someone is poor at managing their money (no matter what the reasons) letting them borrow more and more is not the solution and does not help.

If you manage your money correctly then you do not need and overdraft and if you don't manage your money correctly then an overdraft is just an easy way for them to build up unmanageable debt and I've seen how damaging that can be.

I think your very delusional and you need to go out more in the real world if you think that's a good thing.

bluffer

pdel61 wrote: »

... Remove the option for unauthorised ODs so any attempt to go past your arranged limit is declined ....

and if the banks do that there will be lots of posts on here and in the news complaining that the banks have been too harsh and they should have allowed the payment through.


The public cant have their cake and eat it. If at the end of the day people borrow money from the bank in whatever form, in this case going overdrawn, interest has to be paid on it. If the bank dont get interest why should they lend the money which is after all what they do when they allow someone to go overdrawn? The banks are businesses! Lets not forget that almost all of us are reliant on their profits directly by being shareholders or indirectly though unit trust holdings, private or public pensions or by being able to borrow money from them for mortgages.

bluffer

18cc wrote: »

I think the idea of having an APR model is to help shopping around.

Whereas you may not know how much you are paying on a 23.1% APR rate on your £351 overdraft everyone (most?) would know that another bank offering a 23.0% APR fee would be cheaper.

and its the same with 7p per £100 against 6p per £100.


The real difficulty is the DIFFERENT ways that banks use to show and debit cost.



If they all use one way whether thats APR, Xp per £100 everyone would be able to compare accurately. But given the almost infinite ways people use overdrafts - for a day, years, for £20, for £3000, whatever method is chosen, someone somewhere will complain about it being too difficult and its unfair.

Consumerist

bluffer wrote: »

and its the same with 7p per £100 against 6p per £100.
The real difficulty is the DIFFERENT ways that banks use to show and debit cost.
If they all use one way whether thats APR, Xp per £100 everyone would be able to compare accurately. But given the almost infinite ways people use overdrafts - for a day, years, for £20, for £3000, whatever method is chosen, someone somewhere will complain about it being too difficult and its unfair.

My understanding is that banks will be required to quote an APR according to a universal definition as currently used for all other loans.

Although the APR requirement for overdrafts will make overdraft comparisons easier, if you take bank charges in the round, with the probability of annual or monthly account fees and transaction charges being introduced, then this change is only going to make comparisons of overall charges more complicated.

The only thing in its favour, in my view, is that it should be fairer.

Ergates

Takmon wrote: »

The simple fact is that if someone is poor at managing their money (no matter what the reasons) letting them borrow more and more is not the solution and does not help.

You were given examples of where someone might, without notice, find themselves in sudden financial difficulties through no fault of their own. For example, they don't get paid on time, or the amount they get paid is cut due to an error, or their money is stolen, or they face a sudden and unexpected expense. How do you propose people manage their money "responsibly" in such circumstances. Not pay their rent/Mortgage? Not eat? what?

If you've never had to face such circumstances you should be thankful for your luck, not take it as an opportunity to boast about how good you are at managing your money.

Takmon wrote: »

I think your very delusional and you need to go out more in the real world......

Physician, heal thyself.

Takmon

Ergates wrote: »

You were given examples of where someone might, without notice, find themselves in sudden financial difficulties through no fault of their own. For example, they don't get paid on time, or the amount they get paid is cut due to an error, or their money is stolen, or they face a sudden and unexpected expense. How do you propose people manage their money "responsibly" in such circumstances. Not pay their rent/Mortgage? Not eat? what?

If you've never had to face such circumstances you should be thankful for your luck, not take it as an opportunity to boast about how good you are at managing your money.

Part of managing your money responsibly is making sure that you have a suitable amount of money saved up for emergencies such as these. So if any of these things happen then you are prepared.

I've never ran out of money but that is not due to luck that is due to planning ahead and not living beyond my means making sure that i have enough money in reserve as a priority. I am not boasting; it is a simple thing to budget your money and plan for the future.

If someone is spending every single penny they have each month with nothing to spare. Then they suddenly have an unexpected expense that they pay out of their overdraft. Now they have debt which is incurring interest so they have even higher outgoings for next month. So they are just delaying the inevitable and making their situation worse by borrowing money.

How exactly do you think that helps them?

Ergates

Takmon wrote: »

I am not boasting; it is a simple thing to budget your money and plan for the future.

That's easy to say, but for thousands of people living in poverty *that simply isn't possible*. People living hand-to-mouth and just about scraping through each month aren't going to be able to build up a safety net.