Firstly, why did they not tell me I was getting close to this happening? Secondly, why am I able to go into unauthorised overdraft at all? In this day and age, surely my set limit should be my set limit? And finally, having had my current account with the same bank for the last 16 years, and mostly been in credit, as well as holding a couple of separate savings accounts with them, why do they not recognise this in the rare instance I go overdrawn?
This week’s final Competition and Markets Authority (CMA) report into both the personal and business current account markets focused on ensuring that existing banks make changes in order to increase customer understanding of, and limiting customer exposure to, unnecessary fees and charges, particularly in relation to overdrafts.
Whether you agree with it or not, people needing to borrow money is a reality in the UK. The CMA report stated that 45% of the population use an overdraft at some point in any given month. Unfortunately this has become a massive opportunity for banks to earn a significant margin from customers in the form of a quagmire of opaque charging structures.
Now I am in no way saying that banks shouldn’t be able to make money. Like any other commercial enterprise, banks, of which we are one, need to cover their costs and make a decent enough profit to satisfy shareholders. But when that profit is generated by purposefully over-complicating fees and charges, resulting in, at best a lack of transparency, at worst genuine confusion amongst the most vulnerable customers, then it feels exploitative.
The CMA’s solution to this problem was to mandate that the banks implement three key changes: (Read here the summary report on all recommendations):
Customers need to be given clear notice when they are going into overdraft. We will therefore require banks to alert their customers, for example by sending a text message, when they are going into unarranged overdraft. DEADLINE FOR ALL CURRENT ACCOUNT PROVIDERS TO IMPLEMENT BY Q1 2018
- Customers need to be given the opportunity to avoid incurring charges. The alerts that banks will be required to provide will also inform customers of a ‘grace period’ during which they have an opportunity to avoid charges. MANDATORY DEADLINE FOR ALL CURRENT ACCOUNT PROVIDERS TO IMPLEMENT BY Q1 2018
As I said, some banks already provide text alerts to customers, and to be fair, some (not mine!) do even give you a grace period to move money over into your account to prevent the charge.
But these are often only for unauthorised overdrafts, and the alerts happen on the day of the event.
At Starling, we’ll send real-time alerts to notify you when an expected payment has occurred or when you’re going into your authorised overdraft. This is important, as in almost all instances, other banks levy a cost on a customer in the form of either a charge or debit interest or both, for both authorised and unauthorised overdrafts. But more on this in a second.
One of the more compelling points of difference with a Starling account will be that as you build up transaction history with your account, we will also be able to help you forecast your spending, and if something unusual happens, or you run ahead of your usual monthly velocity, then we’ll notify you well before you go overdrawn so you can do something about it.
- Banks will be required to set a ceiling on their unarranged overdraft charges, in the form of a monthly maximum charge (MMC). A bank’s MMC will specify a maximum amount that the bank can charge a customer during any given month, taking together all unarranged overdraft charges including debit interest and unpaid items fees that the bank charges. Banks will be required to disclose the MMC associated with each of their accounts, so that customers are fully aware and can use it to compare providers. MANDATORY DEADLINE FOR ALL CURRENT ACCOUNT PROVIDERS TO IMPLEMENT BY Q3 2017 This measure insists that customers should be able to draw an “apples with apples” comparison between banks so they can see what they will have to pay if they go into their unauthorised overdraft. Whilst we welcome this as another positive move for the industry to give customers a fairer approach, here at Starling we feel quite strongly that “fairer” isn’t necessarily “fairest”.
As flagged above, this measure still only applies to unauthorised overdraft charges, and doesn’t account for the fact that many customers still have absolutely no idea what they pay on their authorised overdrafts.
If you’re not an overdraft user yourself, here are some facts to help frame the debate, and how Starling will compare: