Monzo to charge 19%, 29% or 39% for overdrafts

18cc

Starling are now doing the same ie rate depends on credit score

TriggerHappy

Same deal as Nationwide then.

But remember, it's to remove confusion for any vulnerable customers...

It's true that a vulnerable customer might be confused about an arranged overdraft costing them 50p per day but changing that to a %age which is variable by customer and means that a different balance means they'll likely be paying a different (not to mention much higher) amount each month, they also need to have a small understanding of compound interest and wait for a statement before knowing how much they'll be paying the following month in interest will make their lives much easier.

Personally, as a problem gambler, I struggled to understand that even if I was continually in my overdraft for an entire month then it would be £16 maximum in charges but totally understand that my varying balance has resulted in £47.07 (otherwise known as three times the amount) is for my own benefit...

I'm one of the lucky ones though because I'm back in control and over the years I've managed to get my financials in order to the degree where I've been able to transfer to a zero interest credit card for 25 months.

Now, despite being with Nationwide for 18 years, I look forward to getting rid of my overdraft and closing my account to go elsewhere because while I accept that O/D charges may be the same elsewhere, I may as well look to profit from moving to another bank.

System

TriggerHappy wrote: »

Same deal as Nationwide then.

Hardly, Nationwide are a flat 39.9% EAR

born_again

Just thinking about the Monzo interest rates.
FCA set the new policy to make it clear and easy for people to see how much they would be paying and be able to compare the banks.
How can you do that when you do not know what interest rate you will be on. As they are not saying where they are getting the credit figure from. And also penalises people who do not check their credit score. Which anyone working in banking means nothing. It's your history that counts.

18cc

To be fair I think what will happen is that they will tell you what your interest rate iis and we'll use some kind of credit score to work out that value not clear exactly what credit score they will use but anyway I am sure you will be informed at the beginning

born_again

18cc wrote: »

To be fair I think what will happen is that they will tell you what your interest rate iis and we'll use some kind of credit score to work out that value not clear exactly what credit score they will use but anyway I am sure you will be informed at the beginning

Might just apply for a monzo account next year to see. Could be a good money spinner if they don't :rotfl:

[Deleted User]

I do agree with that - the spirit at least is that it's supposed to be transparent to see: who would grant you an overdraft and at what rate (cost) prior to applying.

With Monzo & Starling doing risk based pricing, surely that's impossible to see (unless you assume you're going to get 39% and then any better is a bonus). You may still save money, but people could be deterred if they have a 29.9% APR card for instance and don't know if they're going to get 19/29/39 or 15/25/35 (Starling)

Looking at other websites, TSB ask you to self-select between excellent/good/poor but it doesn't soft search you. So for example if I pick poor it shows 0/10, but if you pick the others it's related to your income/amount wanted.

Surely that's not robust enough to count as a meaningful eligibility check!?

Although I accept the rules only came into force this last week and so, hopefully, in time things will improve. Maybe even pre-approved limits similar to how cards worked.

It is right that overdrafts are finally being treated as a debt and eligibility is starting to get more transparent. Costs will finally be fair come April time - TSB/Natwest £6pm for going overdrawn is ridiculous, as is Monzo's 'simple' 50p per day.

born_again

What happens to the interest rate if your credit risk improves. Do they reduce it? Unless they clearly show it people what their score is who will ever know?

[Deleted User]

Likewise if it gets worse, I assume they'd be quite happy to increase you - but how much notice do they have to give? Current contractual terms are about 2 months for most banks?

The real risk for me is that if a credit card increases you they have to give you notice to reject the change and pay off at the old rate. Does that apply to bank account ODs?

And if so, are you then effectively rejecting & closing the account, which is going to cause a whole heap of issues (e.g. salary comes in and pays off OD, but if customers are persistently in it they might find themselves well and truly stuffed trying to get a OD elsewhere).

Also increasing prices for increasing risk, although common in the industry, doesn't really fit with all the bank-bashing Monzo did. It also doesn't support vulnerable customers and (potentially) could make such customers MORE likely to struggle with debt and more likely to default!

Appreciate the alternative is that they just say no, but risk based pricing existing customers UP would really concern me, especially if it's not clear why.

As a real life example - my adverse is nearly 6 years old. Aqua accepted me 3 years ago, 34.9%. They've increased my limit twice (to £900 then to £1950). All adverse getting older, no payments missed etc. Recently they then saw fit to risk based price me up to 49.9% and then 59.9% and have now cut the limit to £400!

Senior customer relations are currently looking into why (along with numerous data quality issues they've caused) - but I'm seriously concerned if banks will be risk based pricing for overdrafts it could really screw with vulnerable customers.

At least in the old world it was that customers had an OD - if bank wanted to revoke it they would, but customers would get an AP marker. Not ideal, but potentially better than being forcibly moved on to higher interest.

jonnygee2

FCA set the new policy to make it clear and easy for people to see how much they would be paying and be able to compare the banks.
How can you do that when you do not know what interest rate you will be on. As they are not saying where they are getting the credit figure from. And also penalises people who do not check their credit score. Which anyone working in banking means nothing. It's your history that counts.

Pretty much all banks will have different products at different rates, and eligibility will be based party on credit score. ie you might get a better credit card rate if your score is better. This isn't anything new that Monzo are doing.

My specific worry with Monzo is that they haven't been great in the past at assessing credit worthiness. They still say that I am not eligible for a £200 loan despite having an excellent credit history, being a homeowner etc (in comparison Barclays won't stop telling me about the 25k loans I've been pre-approved for). I use Monzo as my main account but if they don't offer me the lowest rate I will probably leave them.