Almost half of current account holders say they would prefer their banks to reject payments that would carry them into unauthorised overdrafts, rather than allow the payments and then apply extra borrowing charges.
Unauthorised overdrafts occur when a current account customer exceeds their agreed overdraft limit, often by failing to ensure there is enough money in their account before a direct debit or standing order is due to go out.
If an individual’s bank chooses to pay a bill when there is not enough cash available in his or her account, it can apply a charge for unauthorised borrowing as well as an additional fee for making the payment in the first place.
These charges were the subject of a test case that was concluded on 25 November, in favour of the banks. The ruling will prevent the Office of Fair Trading from assessing whether or not the fees are fair.
Unauthorised overdraft opinions
Which? questioned more than 4,000 adults aged 16 and over in September 2009, but found that different age groups held varying opinions on the subject of unauthorised overdrafts.
While 64% of 16-24 year olds said they would prefer their bank to block payments that would take them beyond their agreed overdraft limits, only 38% of over 45s would want to be prevented from exceeding their limit.
Throughout the bank charges controversy, which has raged for several years, banks have argued that unauthorised overdraft charges are payments for a service.
Which? is now calling on current account providers to make unauthorised overdrafts an optional service. We are also calling for changed to the Unfair Terms in Consumer Contract Regulations – the subject of the bank charges test case – so that overdraft fees will have to be fair in the future.
The Which? bank charges campaign
Which? personal finance campaigner, Phil Jones, says: ‘Different people use their current accounts in different ways so banks shouldn’t adopt a one size fits all approach to overdraft charges.
‘Many current account holders are effectively being lent money that they haven’t asked for and being charged through the nose for it. Such an expensive ‘service’ shouldn’t be forced on people who don’t want it as it can easily lead to financial difficulty.
‘We want banks to show they’re willing to respond to what their customers want by only making unauthorised overdrafts available to those who ask for them.’
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