Banks are earning £440 in fees on £100 overdrafts


Banks are raking in fees of up to £440 on every £100 lent to customers who accidentally stray into the red, watchdogs reveal.

The huge bills on unauthorised overdrafts typically hit the most vulnerable who can remain stuck in debt for months.

Around 3.1million Britons use an unauthorised overdraft each year – suggesting the fees are generating huge profits for the big banks.

Andrew Bailey, chief executive of the Financial Conduct Authority (FCA), said the average unauthorised overdraft fees were equal to 200 per cent of customer balances.

Banks are raking in fees of up to £440 on every £100 lent to customers who accidentally stray into the red, watchdogs reveal. The huge bills on unauthorised overdrafts typically hit the most vulnerable who can remain stuck in debt for months. (File photo)

Banks are raking in fees of up to £440 on every £100 lent to customers who accidentally stray into the red, watchdogs reveal. The huge bills on unauthorised overdrafts typically hit the most vulnerable who can remain stuck in debt for months. (File photo)

Banks are raking in fees of up to £440 on every £100 lent to customers who accidentally stray into the red, watchdogs reveal. The huge bills on unauthorised overdrafts typically hit the most vulnerable who can remain stuck in debt for months. (File photo)

For example, on unarranged borrowing of £50, with a typical fee of £5 a day, it would take just 20 days for a customer to rack up charges of £100 – or 200 per cent of the amount originally owed.

In some cases the fees were as much as 440 per cent, according to an FCA survey covering 2016.

In a speech in the City, Mr Bailey said he plans to take action to rein in excessive fees.

He said: ‘I am aware that some stakeholders have called for us to introduce price capping.

‘We are examining a range of potential approaches to address the harm we see to consumers using these products, and I expect to set out our views in the next month.

‘As I have said, these will be tailored to the particular harms we have found in different markets – we will be consistent in applying the principles I have set out, but that does not imply that our solutions for different markets will be the same.’ 

As well as attacking overdrafts, the regulator also took aim at high-interest doorstep lending and the rent-to-own sector, where poor families are encouraged by firms such as Brighthouse to pay for items such as a fridge and TV in monthly instalments.

Around 3.1m Britons use an unauthorised overdraft each year ¿ suggesting the fees are generating huge profits for the big banks. Andrew Bailey, chief executive of the Financial Conduct Authority (FCA), said the average unauthorised overdraft fees were equal to 200% of customer balances

Around 3.1m Britons use an unauthorised overdraft each year ¿ suggesting the fees are generating huge profits for the big banks. Andrew Bailey, chief executive of the Financial Conduct Authority (FCA), said the average unauthorised overdraft fees were equal to 200% of customer balances

Around 3.1m Britons use an unauthorised overdraft each year – suggesting the fees are generating huge profits for the big banks. Andrew Bailey, chief executive of the Financial Conduct Authority (FCA), said the average unauthorised overdraft fees were equal to 200% of customer balances

Interest rates can be punishingly high, and customers end up paying far more than those with the cash to buy the goods outright.

Rent-to-own borrowers owed an average of £4,300 each in 2016, more than double the £2,000 they owed on average two years earlier.

FCA figures show these customers typically earn £16,100 a year, meaning their debt is equal to around a quarter of their annual income.

Mr Bailey added: ‘It makes no sense at all to create a well-developed social housing system, but leave tenants to provide essential furnishings and fittings at a cost which can be three or four times the ordinary retail price of these goods.

‘At the FCA we can do a lot to help consistent with our statutory objectives, but we cannot on our own arrange new sources of lending.

‘We are willing however to do everything in our power to help here.’

The FCA has been reviewing overdraft fees for several months.

In March, its competition head Christopher Woolard said: ‘We can observe disproportionately high fees and charges.

‘There appears to be no clear relationship between the amount borrowed by the consumers and the amount charged by the firm.

‘Based on our early findings, we believe that there is a case to consider fundamental reform of unarranged overdrafts.’ 

The FCA said it is still gathering evidence but publication of a report on the market is due in weeks.



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