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10 Aug 2019

Nationwide to refund 320,000 customers after breaking overdraft rules

The building society failed to send out text alerts to thousands of customers

Nationwide will pay out more than £6m to its customers, after the Competition and Markets Authority (CMA) ruled that it broke rules around unarranged overdrafts.

CMA regulations require banks and building societies to send customers text alerts before they charge for unarranged overdrafts, providing a chance to pay off the balance.

Nationwide admitted to breaking the order 20 times since February 2018, affecting more than 320,000 customers.

One in five of the customers affected never received texts at all. And even when the message was sent, the wording failed to warn account holders that they would incur charges if they didn't pay - a key part of the CMA rules.

Find out if you were affected, and what this ruling means for unarranged overdrafts in general.

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How Nationwide broke the overdraft rules

Like many current account providers, Nationwide currently offers customers two kinds of overdrafts: arranged and unarranged.

Account holders reach an unarranged overdraft by spending past their agreed overdraft limit. At the moment, these are far more expensive than arranged overdrafts. Indeed, Which? research has shown they can be more expensive than payday loans.

Under the current rules, Nationwide FlexAccount holders could end up paying up to £95 a month for going into their unarranged overdraft.

To help customers avoid these sky-high fees, the regulator requires banks to send customers a text before issuing a charge. Nationwide admits it hasn't always sent these texts, and where it has, the wording didn't always make the higher charges clear.

Here's what a Nationwide customer with an unarranged overdraft would have received previously:

'Please pay in enough cleared funds by 2.30pm so your payments can be sent.'

Here's what customers receive now:

'Please pay in enough cleared funds by 2.30pm so your payments can be sent and to avoid unarranged overdraft fees.'

Though the compensation announcement came on 8 August 2019, Nationwide says this wording was corrected in November 2018.

How much compensation could I get?

If you received a non-compliant text message from Nationwide, or didn't get a message when you should have, you should be compensated. Nationwide says affected customers will receive refunds of £19 on average.

The money will be paid into your account directly if you're still a Nationwide customer. If you're not, you'll get a cheque in the post.

The building society says it will proactively contact affected customers, and that all refunds are expected to be paid by December.

A Nationwide spokesperson said: 'As an organisation that prides itself on service, we apologise for these incidents and any inconvenience caused.'

'We have started the process for refunding members and will ensure no one is left out of pocket.'

Unarranged overdrafts are changing

At the end of July, Nationwide became the first major current account provider to announce a dramatic overhaul to its overdraft fee structure.

From November this year, the building society will scrap unarranged overdrafts and streamline its fees to a flat rate of 39.9%.

The bank is the first to implement new rules announced by the Financial Conduct Authority (FCA), after years of campaigning from Which?.

Under the new regulations, banks and building societies will have to:

  • charge the same fees for arranged and unarranged overdrafts.
  • stop charging fixed daily and monthly charges.
  • provide annual percentage rates (APRs) to make overdrafts easier to compare costs; and
  • take measures to identify and help overdraft customers who show signs of financial difficulty.

Every bank and building society must be compliant by April 2020.

In Nationwide's case, two-thirds of customers could actually end up paying more for overdraft borrowing. This might be the case when other banks make changes, too. The FCA considered this when it drew up the new regulations, and decided that consumers would still be better off on balance.

Other banks are likely to announce their changes over coming months, so look out for correspondence explaining how your provider's overdraft fees will change.

Our guide to the best banks for unarranged overdrafts has details of the state of the current market - though expect things to change between now and April 2020, when the new rules come into place.