Overdraft rules have faced massive overhauls over the last few years, not just from the CMA but also from the FCA and government. The 2017 “Retail Banking Market Investigation Order” made it a rule that customers with personal current accounts must receive a text alert warning them of potential fees before banks charge them for an unarranged overdraft.
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Getting this alert is designed to give people time to take action and avoid unexpected costs.
However, some of the largest banks in the UK failed to heed these rules, which led to over £47million in refunds being handed over to customers.
According to new information published by the government today, the following banks have been forced to refund millions to their customers:
- RBS – £2.2million
- Santander – £2million
- Metro Bank – £11million
- HSBC – £8million
- Nationwide – £7million
Andrea Coscelli, the Chief Executive of the CMA, commented on the figures: “Text alerts have been absolutely key in helping people to avoid unfair unarranged overdraft charges and, where banks have failed to comply, the CMA has worked to secure millions in refunds for customers.
“While these breaches are disappointing – and may have been preventable had the CMA been able to issue serious financial penalties – our action has put a total of more than £47 million back into people’s pockets.
“With responsibility for enforcing this now sitting with the FCA, the dedicated sector regulator, we’re confident that this will continue.”
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While millions being refunded to customers is undoubtedly a good thing, some may find the figures disappointing.
As the figure is so high, it highlights that unfair overdraft actions are still a problem in the industry, one that ultimately hurts the customer.
Salman Haqqi, a Personal Finance Expert at money.co.uk, reflected this in his reaction to the findings: “The figures from the Competition and Markets Authority (CMA) are a story of two tales. On one hand we welcome the CMA putting £47million back in people’s pockets.
“But on the other hand, the figures reveal the issue of unfair overdraft fees. And the fact that this figure only covers a two-year period is outrageous.
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“For far too long the most financially vulnerable have been penalised for being financially vulnerable. But, with the CMA highlighting these breaches, consumers should now start to be treated more fairly when dipping into their overdrafts.”
Some customers, especially at the moment with the problems that coronavirus is presenting, may have no choice but to utilise their overdrafts.
Many may underestimate the costs of doing so and Salman implores struggling consumers to really examine the T&Cs involved: “For those who find themselves frequently in their overdraft, we’d recommend they familiarise themselves with their bank’s fees, and then compare with the wider overdraft market.”
In some cases, it may even be worth looking for other financial products.
This may require more work from the customer, but it could pay real dividends as Salman explained: “Other products may be more suited to their needs – and cheaper too.
“Another step you can take is to look at 0 percent balance transfer credit cards.
“These can provide much needed breathing space, helping you avoid paying interest, and can help clear debt if managed well.
“For those who have seen their overdraft fees pause in line with the bank’s COVID-19 response, now is the time to check their accounts and ensure they won’t fall into a fee trap. Free overdrafts won’t be sticking around for long and consumers could face difficulties when fees are re-introduced.”
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