One in eight of us hit by unfair overdraft fees

£300m unarranged overdraft fees

Customers have been hit with over £300 million in unarranged overdraft fees. Given the opportunity, over half of us would like to remove the option to dip into an unarranged overdraft, but the banks won't let us opt out of the system.

SEE ALSO: Bank branch closures: older people face missed bills and overdrafts

See also: Should you switch banks?

See also: Should you be paying for your current account?

uSwitch research found that one in eight customers had been stung with an unauthorised overdraft charge in the past year - amounting to a total of £300 million. They were charged an average of £33 for going overdrawn, and 5% were charged over £100. This is despite the fact that the average amount people ran up as an overdraft was just £60.

Typically, people didn't mean to dip into their overdraft, they just lost track of what was left in their account, or forgot the fact that a direct debit was coming out, and failed to ensure there was enough cash in the bank to pay their bills.


In an attempt to recoup the fees, 46% called their bank to complain, and while two thirds of them were successful in getting the charges refunded, almost half were told the fees would only be waived once, and they would face the full cost if they went into their overdraft again.

Only a fifth were offered any help to try to prevent them going into their overdraft again - including balance reminders or text alerts.

Most of us want banks to go much further. The majority would rather their bank refused to pay up if there wasn't enough in the account: 53% of Brits say they'd rather their card was declined than running up an overdraft.

Yet this isn't currently standard practice, with over a quarter of those who contacted their bank being told they were unable to deactivate their unarranged overdraft.

USwitch wants to see this situation change, and spokesman Tom Lyon said: "Consent and, ultimately, control over finances needs to be in the hands of consumers. Yet, too many are in the dark about whether they can turn off their unarranged overdraft facility and avoid these extortionate fees. If consumers would rather have their card declined at the checkout than be stung by sky-high fees, they should be given the option to do so."

In the interim, however, it's up to us to do what we can to stay out of an unauthorised overdraft. It's worth setting up regular text alerts of your account balance, so you can keep an eye on what you have left. You can also set alerts for when the account runs low - so that if needs be, you can make alternative borrowing arrangements.

Over time, you can save a cash buffer, so that your account never drops down to zero. If you would struggle to avoid spending your buffer, you can keep it as savings in a separate account, and transfer cash to your current account in an emergency.

If you find yourself regularly dipping slightly into the red, you can consider an account with a fee-free overdraft buffer.

Finally, if all else fails, if you still find yourself running into difficulties occasionally, then make sure you are not with a bank that punishes your mistakes particularly harshly. If, for example, you were to go overdrawn by more than £25 for ten days, you could pay as much as £80 with Lloyds, TSB or Bank of Scotland, or as little as £35 with Barclays.

Most common causes of debt
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Most common causes of debt

There are some very common reasons for building up problem debts. Here we reveal seven of the most common, and what you can do if you face them.

Unemployment or illness that means one or more of the household’s earners are unable to work will bring a profound change in family finances, and according to the Money Advice Service is the most common reason for getting into problem debt.

If your circumstances change, therefore, you need to immediately address your family finances, and put everything on a minimum spend lockdown. You should also look into the benefits and tax credits that are available sooner rather than later, to try to close the gap.

If you are on the kind of contract that means varying hours, it can be incredibly difficult to work out what you can afford to spend - making it the second most common reason for getting into debt - according to the Debt Support Trust.

Rather than swinging through the extremes from week to week, the best approach is to establish a budget that will work in the leanest of months, so you don't find yourself getting used to the months when you work more hours.

According to Citizens Advice, trying to service too much debt is the third most common reason for getting into difficulties. The TUC found that those with problem debts spend 40% of their income on debt repayments.

If you are in this position, you officially need some help with your debt problems. If you continue to rob Peter to pay Paul, you will end up owing more and more, so you need to take stock and talk to a debt charity about all your options.

The double-whammy of the legal bills combined with the incredible cost of establishing two separate households is enough to make divorce or separation the fourth most common reason for going into debt - according to the Debt Support Trust.

There's no easy solution, but if you are going through this, it can be helpful to talk through your financial situation with someone you trust or a debt charity, who can help you balance a stretched budget.

Problem debts aren’t necessarily caused by a sudden shock to the system. According to the Money Advice Service, 20% of their clients are simply trying to live on an unsustainably low income.

If you are in this category, it’s important to seek help on the benefits and tax credits you may be able to receive. It’s not always easy to navigate the system, but charities like StepChange have experts on the benefits system who can talk you through what’s available.

The combination of rising costs and stagnating wages over the last few years has meant increasingly people saw their monthly wage cover less and less of their monthly outgoings. This position has started to ease more recently, but has left many people far worse off than before the financial crisis. The Money Advice Trust said a combination of this and unexpected costs was responsible for almost one in ten problem debts.

If you consistently spend more than you are expecting, it's well worth keeping a spending diary. That way you can establish the real cost of living, and start to identify where you can cut costs.

The Money Advice Service says it commonly deals with individuals who have struggled to get to grips with budgeting and debts, and have got into debt because they don’t have the skills and knowledge to manage their money effectively.


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