Are the Banks about to get tough(er) on overdrafts?

malestrom07

I think there are several issues that the Bank are trying to address, there are obviously benefits to having people on overdrafts at 9% and the charges they can apply for the service are fairly lucrative. However, this is a great opportunity for the Bank to summon cutomers in and look at the whole picture, if it's hopeless then they may reduce or remove thge overdraft before the customer jumps ship.

If there's a money lending/refinancing opportunity then they are certainly going to want to refinance as rates are on the high side right now. Call me a cynic but Egg did exactly this to client's who weren't profitable. HSBC are renowned for offering "Managed Loans" to clients who are struggling........... and have you seen the extortionate interest rates that these loans attract. Indeed a very interesting thread...

malestrom07

I think there are several issues that the Bank are trying to address, there are obviously benefits to having people on overdrafts at 9% and the charges they can apply for the service are fairly lucrative. However, this is a great opportunity for the Bank to summon cutomers in and look at the whole picture, if it's hopeless then they may reduce or remove thge overdraft before the customer jumps ship.

If there's a money lending/refinancing opportunity then they are certainly going to want to refinance as rates are on the high side right now. Call me a cynic but Egg did exactly this to client's who weren't profitable. HSBC are renowned for offering "Managed Loans" to clients who are struggling........... and have you seen the extortionate interest rates that these loans attract. Indeed a very interesting thread...

Bismarck

The key word here is confidence...the bank need to be confident that the OD will be repaid and if that means using another sort of credit to do temporarily then I don't think that does any harm..e.g. if I was £2K OD before payday and this got to £1K OD after payday and built up again to £2K during the month I could see that this may trigger something in the computer system that says this OD is semi-permanent and needs investigation or re-assessing.

If I could borrow an extra £1K or do a super balance transfer to clear the OD, I've a feeling that this could reset the computer system or at least show the bank that I could, if I wanted to repay the OD...then they would have their confidence restored in my ability to repay on demand and I'm not desperate to borrow from them but choosing to because I want to and the terms are mutually beneficial.

Of course the bank could stop the OD facility once it's repaid but if they believe the money will come back to them at little risk , I've a feeling that they'd let the OD continue....again it's down to confidence...I'd welcome any thoughts on this intriguing topic....

boredofbeingathome

Funnily enough I have a halifax card. I requested that they reduce the limit, so i am not tempted to spend on it. I rung them up this week to request another reduction, and they had cross wires as apparently my account is under review, and they were already reducing the limit..I am not bothered about it as it suits my purposes at moment. I had a conversation about it as i always overpay minimum, and have never gone over the limit (on this one)

The conversation was interesting though, as he had heard there were rumors via, HO that in future they would be looking at allowing folks, one loan and only two credit cards, before they would disallow further borrowing.So they are currently reviewing all existing customers.

Now this is only hearsay, but i thought that it would impact in several ways;

1. Is an overdraft counted as a loan?
2. What about stoozing ?
3. how would that affect existing customers who have larger outstanding borrowing?

This goes back i suppose to the enforced repayment, and possibly a greater amount of folk on DMP's, which would ultimately mean less profit for the bank.

Sort of cutting your nose off to spite your face scenario?

bountiful

I had two current accounts with Halifax - one for bills, one for the rest. I have a £2,750 overdraft with Halifax - which happened because I went into the branch to beg to have charges waived - they said, OK - as long as you agree to an overdraft (they also recommended I accept the £2750 which the 'computer' was currently offering me - even though my salary is only £950 a month - of course, I thought I'd stooze it - but of course, it's just gone and increased my debt). I have since moved salary and daily living over to A&L - and now just have the overdraft sitting at Halifax. When I tried to get advice, they tried offering me a consolidation loan - which I said 'nothanks' to - and I recently had a letter saying the account would be frozen if I didn't make regular salary payments/similarly large amounts into it. It IS very scary...... we will all go bankrupt - then they won't get anything anyway!

TTMCMschine

Its hardly surprising is it? The banks are having to go to the city & pass around the hat for more funds to stay afloat, which damages their share price, their reputation, their business, the stock market in general, consumer confidence, the economy, etc, etc.

If they simply recover say half of the outstanding amounts owed in overdrafts then it will cut their necessary rights issues by a good chunk, preserving some value for their shareholders, & saving the economy a load of pain (well, some pain, its going to get some anyway).

From a business point of view it has to be done - you can't issue more shares than are necessary & therefore devalue the share holdings of people who have invested their money into the bank in order to look after the interests of people who haven't invested their money in the bank but instead perpetually owe the bank money.

It might seem unfair but it is totally necessary - do not underestimate how much trouble the banks, house builders, pension funds, hedge funds, & other companies are in right now. It's make or break for a great many companies, & unless the BoE step in we could well see banks going to the wall - & thats bad for everyone.



PS I hate the banks too, just being realistic here, I'm not on their side.

MrsTinks

Interesting thread... I've thought for a while that "risky" accounts would be at risk of "reviews" and I think we'll see more and more of these instances cropping up. Is it a good or bad thing... Hmmm depends 100% on how the bank enforces it I guess. If they are responcible and work with people to gradually reduce at a rate that the customer can afford without putting them at increased risk of going over their limit then fab - if as I suspect they will they use it as an excuse to slam more charges on people already struggling then obviously it's horrible. Overdrafts do usually come with a "review date" which I guess they might now start to enforce...

boredofbeingathome

TTMCMschine wrote: »

Its hardly surprising is it? The banks are having to go to the city & pass around the hat for more funds to stay afloat, which damages their share price, their reputation, their business, the stock market in general, consumer confidence, the economy, etc, etc.

If they simply recover say half of the outstanding amounts owed in overdrafts then it will cut their necessary rights issues by a good chunk, preserving some value for their shareholders, & saving the economy a load of pain (well, some pain, its going to get some anyway).

From a business point of view it has to be done - you can't issue more shares than are necessary & therefore devalue the share holdings of people who have invested their money into the bank in order to look after the interests of people who haven't invested their money in the bank but instead perpetually owe the bank money.

It might seem unfair but it is totally necessary - do not underestimate how much trouble the banks, house builders, pension funds, hedge funds, & other companies are in right now. It's make or break for a great many companies, & unless the BoE step in we could well see banks going to the wall - & thats bad for everyone.



PS I hate the banks too, just being realistic here, I'm not on their side.

Well thought out. I have to admit i used to have shares (in a few banks/ building society takeovers)

The last paragraph certainly rings true. I was quite surprised at being under review, as OH is usually the one who will max his cards out. The one i have with the Halifax, is 0% and i wanted it paid off before rate runs out. I rarely use my overdraft facility, and recently had a phone call from bank about 6 monthly reveiw...first one i have had ( on my account) and been a customer for over 14 years. They must smell a borrowing opportunity, or as you suggest want to cut limit. Very happy to do that as well, saves on the temptation.

ZTD

TTMCMschine wrote: »

If they simply recover say half of the outstanding amounts owed in overdrafts then it will cut their necessary rights issues by a good chunk, preserving some value for their shareholders, & saving the economy a load of pain (well, some pain, its going to get some anyway).

What they will do, is recover money from the overdraughts, and then use it to buy risk-free guilts. The first stages of a Kenysian liquidity trap.

TTMCMschine wrote: »

It might seem unfair but it is totally necessary - do not underestimate how much trouble the banks, house builders, pension funds, hedge funds, & other companies are in right now.

Well pension funds should not be in trouble, as they should not be using leverage.

TTMCMschine wrote: »

It's make or break for a great many companies, & unless the BoE step in we could well see banks going to the wall - & thats bad for everyone.

The BoE will step in - it's what they are there for. The BoE for the banks, and the Treasury for the Government. The only thing we (the little people) have to make sure our interests are taken care of, is the good old-fashioned bank run.

But it doesn't matter if the BoE does step in - all they can do is provide liquidity. Illiquidity is not the major problem. Insolvency is the major problem.

Bismarck

well, ZTD...

"The first stages of a Keynesian liquidity trap."

You really know how to get the juices going....I've forgotten all about that...need to go and look it up.