More than 115,000 HSBC and an undetermined number of Santander customers are set to receive refunds after being charged unarranged overdraft fees without proper warning.
The Competition and Markets Authority (CMA) found that both banks broke a legal order requiring them to send text alerts to customers that were about to be hit with fees for slipping into the red.
Here, we explain what happened, whether you’re likely to get a refund and the rules banks have to follow for unarranged overdrafts.
What did HSBC and Santander do wrong?
In February 2018 the Retail Banking Market Investigation Order came into force requiring banks to send customers text alerts before going into unarranged overdrafts.
The texts are designed to give people a warning and time to transfer money over to avoid charges.
The CMA found that both HSBC and Santander failed to do this, on several counts.
HSBC to refund over 115,000
The CMA found that HSBC had breached the law on two counts; one relates to HSBC’s ‘unsociable hours policy’, which meant that the bank did not contact customers between 10.45pm and 7.30am on weekdays, and 10.45pm and 10am on weekends and bank holidays.
Any HSBC customers who went into unarranged overdrafts during these hours would not have received text alerts; this is thought to apply to around 35,000 customers.
The second breach is down to how HSBC stored customers’ mobile numbers. The CMA found its SMS system was not compatible with the way some phone numbers had been stored, which caused over 80,000 customers to miss text alerts.
Santander breached the code six times
According to the CMA, Santander has made six breaches of the Retail Banking Market Investigation Order.
These breaches included:
- the bank’s system failing to save some customers’ mobile phone number;
- failing to alert those with arranged overdrafts where direct debit payments would then send them over their overdraft limit;
- sending delayed text alerts on 72 occasions due to high volumes of payment processing.
Who is eligible for a refund?
HSBC has confirmed that all affected customers will be contacted with an apology and informed about a refund.
The bank is set to pay £8m in refunds to 115,000 people, so on average, the refund could amount to £69.60 each.
However, the actual amount you get will depend on how many times you have been affected by the problem.
Someone who has been charged multiple times will get a bigger refund than someone who only went into their unarranged overdraft once.
HSBC expects all refunds will be paid by early 2020.
For Santander customers, the situation is less clear.
In its letter from 29 November, the CMA said that Santander had been unable to provide figures for the numbers of customers affected or the value of refunds it needs to make.
Santander has since confirmed to Which? Money that it is still working to confirm these figures, but is doing so as a priority.
The CMA has penalised Santander for breaching the code before; in May 2018 Santander repaid £2m in charges to 25,000 affected customers who had not received alerts about unarranged overdraft charges.
- Find out more: best bank accounts for unarranged overdrafts
Who isn’t eligible for a refund?
You won’t be one of the people getting refunds for this particular problem if:
- You have used your arranged overdraft
- You’ve never used your unarranged overdraft
- You received a text warning you that you were about to go into an unarranged overdraft and will be charged for doing so
- You don’t bank with HSBC or Santander.
What the banks say
An HSBC spokesperson told Which? Money: ‘Having been the first bank to auto-enrol customers to unarranged overdraft SMS alerts, and seeing that six in 10 of our customers who receive one then pay in money avoiding additional charges, we appreciate how helpful these text messages can be.
‘We apologise to those customers who, for different reasons, did not receive an alert. We will continue contacting customers who incurred overdraft charges as a result of these issues to apologise and provide a refund.’
A spokesperson from Santander told Which? Money: ‘We are very sorry that some customers in certain circumstances were not sent the required overdraft alerts. The introduction of these alerts is a move we welcome and believe is a real support to customers.
‘We have carried out a detailed review to understand why the errors happened and have taken steps to fix the issues. We are now working to identify and refund all affected customers as quickly as possible.’
- Find out more: best and worst banks
What is an unarranged overdraft?
An unarranged overdraft occurs when you spend more money than you have in your account and any agreed overdraft limit with your bank.
The level of unarranged overdraft fees banks and building societies charge has been a contentious issue for some time. Banks earned £2.4bn in overdraft fees in 2017, £720m of which came from unplanned borrowing.
Which? has previously campaigned to put a stop to unfair unarranged overdraft fees.
In 2017 we published a dossier containing consumers’ experiences of being in their overdraft. This included stories of people being charged hundreds of pounds for going a few pounds overdrawn. You can read the dossier in full here.
As a result, many banks have been ordered to greatly reduced these fees and make the charges clearer.
All banks must have a monthly maximum charge (MMC), which is a cap covering all fees and interest for any unarranged borrowing, which we’ve found ranges from £2 to £100 a month.
- Find out more: best bank accounts for arranged overdrafts
How are overdrafts changing?
The Financial Conduct Authority (FCA) is taking action to tackle low levels of awareness and engagement with overdrafts so that consumers can better understand them and discover where they will get a better deal.
- Provide online, or within a banking app, tools that indicate eligibility for overdrafts.
- Improve the visibility and content of key general information about overdrafts and clearly present overdrafts as a form of debt.
- Provide a calculator to allow customers to check the costs of overdrafts for different patterns of use.
- Automatically enrol their customers into a set of overdraft alerts to address unexpected overdraft use. These alerts will generally be text message or banking app push notification alerts warning consumers of overdraft use that may result in charges.
- Remove any available overdraft from the description of a customer’s ‘available funds’ (HSBC, First Direct and M&S Bank have implemented this change).