New research by Which? reveals just how hard it is to calculate unauthorised bank charges under the current charging structures of the main banks.
Which? experts have discovered that people using unauthorised overdrafts would find it virtually impossible to calculate how much their bank would charge them, or to compare charges between banks as the fee structures are so complicated.
Bank charges are too complicated
We asked a group of Which? members to work out the cost of an unauthorised overdraft for four different banks by giving them a mock bank statement. Despite one of the volunteers being a maths PhD student, not one got all the calculations right, only managing to get seven out of 48 correct answers between them.
One volunteer commented: ‘Details on rates and charges should be accessible, be in plain English and in a standard format, so that banks can be easily compared. At the moment you need to be both a detective and have a PhD in maths to work out what you may owe’.
Another said: ‘I like to think I’m reasonably intelligent, but I couldn’t get my head around this information and found it impossible to calculate’.
Charges are still too high
We also found that people could paying over twice as much a month of an unauthorised overdraft with one bank compared to another. Nationwide BS charged the highest for a ‘small overdraft’ (where you make one payment from your account while overdrawn following an initial payment that takes you into unauthorised overdraft and are overdrawn for two days in a row in a month). It charges £50 compared to the £10 charged by Halifax’s Reward Account.
For a ‘large overdraft’ First Direct and HSBC were the most expensive at £150 a month. Barclays was the cheapest out of the eight banks, charging just £66 for the same overdraft. The ‘large overdraft’ was for an overdraft of 21 days with an initial payment taking you into unauthorised overdraft and then a further 12 payments made while overdrawn. The research also revealed that many banks are using expensive daily fees. RBS, for example, charges £6 a day, equivalent to 2,190% APR on a £100 unauthorised overdraft.
Bank charges must be fair and clear, says Which?
Which? wants the new financial regulator, the Financial Conduct Authority (FCA), to be held accountable for putting a stop to unfair overdraft charges, with clear powers to tackle excessive and complicated fees.
Banks should also be forced to provide electronic information to their customers about the way they use their bank accounts to allow them to make ‘one click’ comparisons between accounts.
Watchdog not lapdog
Which? is launching its Watchdog not Lapdog campaign today, calling on the Government to make the FCA a strong ‘watchdog’ and not a weak ‘lapdog’, to stand up to the banks.
Which? chief executive, Peter Vicary-Smith, said: ‘While the Government has previously announced reforms to tackle unfair overdraft charges, they simply don’t go far enough. It’s extremely disappointing to find that bank charges are still too high, too complex and impossible to compare.
‘It’s essential that the Government gives the new financial regulator the power to limit these charges and to challenge their complexity. We want to see the new regulator put consumer protection at the heart of everything it does. The regulator must be a strong, open and proactive watchdog that stands up to the banks, not a lapdog.’