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Nationwide BS, how about 40% EAR/APR Overdraft Charges?

:eek: We’re changing how we charge for arranged overdrafts.

From 11 November 2019, instead of charging you the existing arranged overdraft interest rate of 18.9% EAR (variable) on the amount you’re borrowing, we’ll be charging 39.9% EAR/APR (variable) on all new and existing borrowing. So, whether you have a FlexDirect, FlexPlus or FlexAccount, there’ll be a single overdraft rate on all arranged borrowing; making things clearer and easier to understand.

If you take out an arranged overdraft before 11 November 2019, you’ll be charged 18.9% EAR (variable) until this date. After that, the new rate will apply.

BB Code Editor

Are free unauthorized overdrafts a moral hazard 27 votes

Yes
37% 10 votes
No
62% 17 votes
«134567

Comments

  • sal_III
    sal_III Posts: 1,953 Forumite
    Fifth Anniversary 1,000 Posts
    I'm a bit confused, the poll is for free unauthorized (assume you meant unarranged?) overdraft and the post is about paid arranged overdraft.

    What is the point?
  • Another inane poll post
  • Was the the banking crisis of 2008 inane? Perhaps there were too many people like you who never really understood the term 'Moral Hazard' as it applies to people who use banks.
  • sal_III wrote: »
    What is the point?
    If you want to bank with someone and you have a poor credit history and no arranged overdraft sign up with NW and they won't charge you a fee if you go overdrawn. Click the link to find out more.
  • eskbanker
    eskbanker Posts: 35,222 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    edited 31 October 2024 at 12:25PM
    If you want to bank with someone and you have a poor credit history and no arranged overdraft sign up with NW and they won't charge you a fee if you go overdrawn. Click the link to find out more.
    Perhaps you're misunderstanding what Nationwide are actually saying?

    They're not offering free unarranged overdrafts, they're saying that they're now going to be taking active steps to prevent accounts going overdrawn if there's no arranged facility, unless in exceptional circumstances, as per https://www.nationwide.co.uk/-/media/MainSite/documents/products/current-accounts/flexaccount/P3749-FlexAccount-summary-of-changes.pdf:
    Removal of unarranged overdrafts and the paid and unpaid transaction fees

    An unarranged overdraft is where we may cover a payment, even if you haven’t got enough money in your account or an arranged overdraft with us. In the past, we’d have covered these payments – but to help reduce unexpected fees, they will no longer normally be paid.

    [...]

    Except for a few special circumstances, you won’t be able to go into an unarranged overdraft now. The rare occasions where this might still happen are:
    • if we can’t, for any reason, stop a payment you’ve made, or
    • if a payment into your account is recalled by the bank making it, or
    • if a cheque paid into your account is later returned unpaid, or
    • if we apply charges to your account.
    No moral hazard - nothing to see here, move along....
  • [Deleted User]
    [Deleted User] Posts: 0 Newbie
    Part of the Furniture 100 Posts Name Dropper Photogenic
    edited 10 August 2019 at 9:39AM
    eskbanker wrote: »
    Perhaps you're misunderstanding what Nationwide are actually saying?...
    Perhaps I am so clarity is important especially as other providers may follow suite.

    You linked FlexAccount Summary of Changes
    Removal of unarranged overdrafts and the paid and unpaid transaction fees - Page 2
    An unarranged overdraft is where we may cover a payment, even if you haven’t got enough money in your account or an arranged overdraft with us. In the past, we’d have covered these payments – but to help reduce unexpected fees, they will no longer normally be paid.

    There are some cases where you may still go into an unarranged overdraft (which we explain on page 3) – but if this ever happens, as of 11 November 2019, you’ll no longer be charged the £5 paid transaction fee. You’ll just need to pay back the amount as soon as possible, and you won’t be able to take out money from your account until you have done this.

    We’ll also be removing the £5 unpaid transaction fee – which you’d normally receive if a scheduled payment, like a direct debit for example, doesn’t go through because there isn’t enough money in your account to cover it.

    If you don’t currently have an arranged overdraft in place but would like to see if you can get one now that unarranged overdrafts are no longer available on your account, you can find out how to apply by taking a look at the ‘Your questions answered’ section on page 6.
    Your Questions Answered - Page 3
    If I reach a zero balance or the limit of my arranged overdraft and find myself in an unarranged position and unable to make any payments, what do I need to do?
    From 11 November 2019, to carry on using your current account, you’ll need to either:

    a) Bring your balance out of an unarranged position – either within your arranged limit or above £0.00 if you don’t have an arranged limit.

    b) Review your arranged overdraft limit to better suit your borrowing needs. To find out more, see the question ‘How do I apply for an arranged overdraft or change my existing limit?’.

    If you don’t feel able to do the above, then please get in touch and we’ll try to help. You may also find useful information at nationwide.co.uk/money
    What's not clear and for example: if the arranged overdraft is £250 and you go over, how much will they allow you to go over because this is attracts interest at 39.9% APR. Similarly, for an unarranged overdraft what amount will they allow you to go over by. Is this borrowing rate competitive or is it excessive in terms of short term borrowing.
  • MABLE
    MABLE Posts: 4,193 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    I went online and used their calculator. If I were to use the £5000 overdraft facility it would cost me £15 a month until the impending change. After that it would cost me £144. This is the Flex direct account.

    Fortunately its not something I use very much but for someone who draws on it regularly it certainly makes a big difference.
  • eskbanker
    eskbanker Posts: 35,222 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    edited 31 October 2024 at 12:25PM
    What's not clear and for example: if the arranged overdraft is £250 and you go over, how much will they allow you to go over because this is attracts interest at 39.9% APR. Similarly, for an unarranged overdraft what amount will they allow you to go over by.
    But the fundamental point is they won't allow you to go into unarranged overdraft, other than in the stated exceptional circumstances where it's effectively instigated by themselves or another bank, rather than the customer. Your 'moral hazard' hypothesis seemed to be painting it as a way for poor credit customers to access easy and/or cheap funds but it's clearly nothing of the sort.
    Is this borrowing rate competitive or is it excessive in terms of short term borrowing.
    I haven't conducted a study of overdraft rates but expect that most providers will be adjusting them anyway, in response to the FCA's demands for restructuring of overdraft charging, which will move them all away from differential charging between arranged and unarranged, and prevent daily fees, etc. Given this FCA steer, it seems inevitable to me that the headline APRs will be increased....
  • MABLE wrote: »
    I went online and used their calculator. If I were to use the £5000 overdraft facility it would cost me £15 a month until the impending change. After that it would cost me £144. This is the Flex direct account. Fortunately its not something I use very much but for someone who draws on it regularly it certainly makes a big difference.
    Thank you for the illustration. For twenty years or more our home budget which back in the day included mortgage repayments as well as rates, utility plus others payments has and continues to be done on an Excel spreadsheet. I check the spreadsheet balance against the bank balance each month to a penny. The spreadsheet reveals upcoming months when the account will become overdrawn. Even though I have a £1000 arranged overdraft it never gets used because the budget account receives additional funding in anticipation of shocks to take it out of the red. My home budget for historical reasons runs from April to March of the following year. During March a spending review takes place where the budget is rebuilt for the following year. The fixed amount paid into the budget each month is adjusted accordingly. The challenge is to keep it to the same amount year on year by lowering outgoing costs.

    This is a funded budget as opposed to the unfunded budgets that most people use. When there is a surplus the budget can be drawn down and the money used elsewhere. Key to successful money management is a regular monthly income. Alas, for all too many income comes in at varying times of the month and when it arrives it is never enough. People then apply for short loans (charity) from the bank of Mum & Dad or family and friends.

    Mum knows that her energy bill is due by direct debit. NW uses its discretion and allows the debit to take place even though there is not enough money in the account to cover it. She becomes overdrawn by £90. All of her other direct debits are refused. Each time this happens no admin fee is payable but the £90 attracts interest at 39.9% APR with no prospect of repayment.

    The banking crisis built up slowly and revealed itself in 2008. The world of money in my view is divided into halves. Those that have a regular income at a fixed time of the month (the salaried) and others whose income varies across the month (the self-employed). Because of the way that the state pays out welfare those who enjoy its benefits fall into the class of the self-employed. This avoids the politics of saying that welfare recipients are salaried.

    The term 'Moral Hazard' in its technical sense relates to the risks that Banks take on. If the banking sector was to do what NW is doing then a stress test of the bank would be needed to determine whether the bank has enough assets to cover the increased risk. Has NW a mutual, funded the risk by lowering the interest payable on its savings accounts?

    Just what is the banking sector to do?
  • eskbanker
    eskbanker Posts: 35,222 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    edited 31 October 2024 at 12:25PM
    Mum knows that her energy bill is due by direct debit. NW uses its discretion and allows the debit to take place even though there is not enough money in the account to cover it. She becomes overdrawn by £90. All of her other direct debits are refused. Each time this happens no admin fee is payable but the £90 attracts interest at 39.9% APR with no prospect of repayment.
    The lack of cohesion and clarity in your wandering and rambling posting style may be clouding the issue, but it's still not clear to me whether or not you actually understand what Nationwide are saying! Just to reiterate what's already been quoted more than once upthread: once their changes are introduced in November, they will no longer use their discretion in this way and will refuse to pay all direct debits if there isn't enough money (or arranged overdraft) to cover them, so your (hypothetical?) mum won't be able to rely on such DDs being honoured if she doesn't have funds available, and so will need to find money from elsewhere to pay her suppliers.
    The term 'Moral Hazard' in its technical sense relates to the risks that Banks take on. If the banking sector was to do what NW is doing then a stress test of the bank would be needed to determine whether the bank has enough assets to cover the increased risk. Has NW a mutual, funded the risk by lowering the interest payable on its savings accounts?

    Just what is the banking sector to do?
    I can't follow your line of argument at all - to me Nationwide's new measures are reducing their risk exposure rather than increasing it, by virtue of them effectively removing unarranged overdraft facilities, or at least heavily containing their use, by eradicating the discretionary concessions you refer to. Why do you think there's an increased risk?
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