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

SnowTiger

[Deleted User] wrote:

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.

You mention Nationwide using its 'discretion' and allowing a payment to be made.

Presumably you're referring to an unauthorised overdraft.

My understanding is that from 11th November a direct debit that would cause an account to go in to an unauthorised overdraft will be refused/rejected.

https://www.nationwide.co.uk/support/product-support/current-account/current-account-changes#xtab:twistyheadingcontent-flexaccount:

From 11 November, we’re removing unarranged overdrafts. This means you will not usually be able to spend over your arranged overdraft limit. And if you don’t have an arranged overdraft, then we’ll try to stop you from falling below a £0 balance.

Therefore, your Mother won't have to sell her jewellery to pay £2.51 interest for borrowing £90 for thirty days.

You're interested in morals. Perhaps the moral thing to do would be for you to gift your Mother £90 to cover her energy bill. That's what I would do.

[Deleted User]

If you find that in some months you know you’re going to be overdrawn then I suggest you do what you can in previous months to make sure that doesn’t happen.

It can’t be difficult to plan that far ahead since you’re already doing so, do you not have savings or an emergency fund for such months?

dave1345

eskbanker wrote: »

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....

I wouldn't surprise me that when the other banks announce their changes it turns out that Nationwide aren't the most expensive.

JuicyJesus

Banks (and indeed building societies) do have to make money in order to exist. Turns out when you restrict revenue streams they're previously using to stay as going concerns they have to find new ones.

[Deleted User]

SnowTiger wrote: »

...Therefore, your Mother won't have to sell her jewellery to pay £2.51 interest for borrowing £90 for thirty days. You're interested in morals. Perhaps the moral thing to do would be for you to gift your Mother £90 to cover her energy bill. That's what I would do...

How thoughtful of you, I will be sure to do this when I meet her in the next life. Did you know that in the UK Banks' of Mum and Dad cannot register as Charities?

However

I received the letter from Nationwide today. The FCA has had a mental breakdown if they think these new arrangements make sense. I have had an arranged overdraft for many years as an emergency back up if my account dips into the red, for whatever reason: my fault, your fault, IT fault. That's prudent and sensible, and I return to black asap by transferring enough from a savings account. The rate used to be 6%. Now it's a usurious 38%. I might as well borrow on a credit card - it'll now be cheaper.


People who don't have an arranged overdraft in the first place will have their accounts frozen if they go overdrawn, until they transfer enough money in to put them back into the black (that's what N/W has written). To me, for those people who have difficulty in managing their account already are going to find it a whole lot more difficult and possibly catastrophic - not least, for example, crucial direct debits going unpaid, affecting credit ratings, and if you're abroad you might find your account is frozen and you have no means of unfreezing it.


Nobody seems to think things through any more. I'll await the cacophany of distress from all those who bawled unfair. And the apologists for this daft scheme berating me for being so negative and stroppy.

[Deleted User]

Judging by OP's previous posts, they seem to have an inability to read T's and C's with care and attention, and should also be looking for a bank that offers free tin-foil hats on sign-up.

[Deleted User]

JuicyJesus wrote: »

Banks (and indeed building societies) do have to make money in order to exist. Turns out when you restrict revenue streams they're previously using to stay as going concerns they have to find new ones.

Yes they do! But its funny you should mention this. I was looking to see what gross margins banks use with not much success when I came across Professor Aswath Damodaran who teaches corporate finance at NYU. He collects global data and publishes it online as Margins by Sector (US).

What stood out was banking gross margins operate at 100% with net margins at about the average. Gross margin is the profit in a product whilst net margin is the profit across the business with all the overheads taken into account

If the banks are operating with a 100% gross margin there is a lot of overhead to be accounted for in order to arrive at the net margin. This suggests banks are either very greedy, very inefficient or both.

It seems to me that they are in need of a Money Saving Expert.

eskbanker

However wrote: »

The FCA has had a mental breakdown if they think these new arrangements make sense.

[...]

Nobody seems to think things through any more.

When the FCA announced this change a couple of months ago, it did seem clear (a) that the intended simplification was just returning the industry back to where it had been before (which people apparently found confusing) and (b) that the FCA's assumptions that it'll lead to reduced costs seemed unfounded!

eskbanker wrote: »

And round and round we go - as I recall overdrafts used to be charged at published interest rates as standard but the 2016 CMA recommendations on capping unauthorised overdraft costs led LBG in particular to introduce the concept of fixed-fee overdrafts on the basis that customers found interest rates too confusing!

eskbanker wrote: »

Willing2Learn wrote: »

City regulator bans high overdraft fees to reform 'dysfunctional' market

The Guardian's sub-editors are being a tad disingenuous with that choice of headline - the regulator isn't banning high overdraft fees!

The regulator is banning the use of differential rates between arranged and unarranged overdrafts but stops short of actually imposing any sort of price cap, so there's nothing in these new measures that prevents harmonisation to the higher rate rather than the lower one.

Likewise, banning per-day charges and fixed fees for having a facility don't directly mean a cost reduction, if banks choose to wrap up such costs into higher APRs, so the FCA measures are all about how overdraft costs are structured and presented rather than their overall level.

It's not unreasonable to anticipate that market forces will take effect to prevent banks from stepping significantly out of line with their competitors, but that's not the same as regulator action keeping fees down, so it's not clear to me the basis on which the FCA chief executive claims "Following our changes we expect the typical cost of borrowing £100 through an unarranged overdraft to drop from £5 a day to less than 20 pence a day".

https://www.fca.org.uk/news/press-releases/fca-confirms-biggest-shake-up-overdraft-market has the unspun version of the story....

boo_star

[Deleted User] wrote:

Yes they do! But its funny you should mention this. I was looking to see what gross margins banks use with not much success when I came across Professor Aswath Damodaran who teaches corporate finance at NYU. He collects global data and publishes it online as Margins by Sector (US).

What stood out was banking gross margins operate at 100% with net margins at about the average. Gross margin is the profit in a product whilst net margin is the profit across the business with all the overheads taken into account

If the banks are operating with a 100% gross margin there is a lot of overhead to be accounted for in order to arrive at the net margin. This suggests banks are either very greedy, very inefficient or both.

It seems to me that they are in need of a Money Saving Expert.

I'm guessing those figures are from US banks.

US banking is very different to that in the UK.