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| Overdraft woes: 'We were one bill away from disaster' | Overdraft woes: 'We were one bill away from disaster' |
| (35 minutes later) | |
| Mother Cindy Toth dipped into an overdraft to pay for an emergency but, like millions of people in the UK, she then found it tough to climb back out. | Mother Cindy Toth dipped into an overdraft to pay for an emergency but, like millions of people in the UK, she then found it tough to climb back out. |
| She said daily overdraft charges meant her family had nothing to spend after rent and grocery bills and were "one bill from financial disaster". | She said daily overdraft charges meant her family had nothing to spend after rent and grocery bills and were "one bill from financial disaster". |
| Newly-announced plans on overdrafts would end this kind of charging. | |
| The Financial Conduct Authority (FCA) wants banks to charge a single interest rate for all types of overdraft. | |
| Banks would set a single rate for going into the red and customers would be able to compare banks for the best deal. The FCA, the City regulator, is also proposing a ban on any fixed fees linked to an overdraft. | |
| Mrs Toth, who is married and in her 40s, said she had used her arranged overdraft as it was intended - to cover an unexpected cost which, in her case, was flights to the US for a funeral. | Mrs Toth, who is married and in her 40s, said she had used her arranged overdraft as it was intended - to cover an unexpected cost which, in her case, was flights to the US for a funeral. |
| However, she was then made redundant and the debt was never paid off. Each month the family would go up to £4,500 into the red. | However, she was then made redundant and the debt was never paid off. Each month the family would go up to £4,500 into the red. |
| The crunch came when her bank - Barclays - switched from an overdraft interest rate to a daily fee for going overdrawn. She said that increased the typical monthly bill from £30 to £90. | The crunch came when her bank - Barclays - switched from an overdraft interest rate to a daily fee for going overdrawn. She said that increased the typical monthly bill from £30 to £90. |
| She said the extra charges meant she was worrying about other costs including buying school shoes for her son and paying a plumber's bill. | She said the extra charges meant she was worrying about other costs including buying school shoes for her son and paying a plumber's bill. |
| "It meant no family holidays, and no Christmas presents exchanged with my husband. It is mentally and emotionally difficult. You just feel that you are treading water the whole time." | "It meant no family holidays, and no Christmas presents exchanged with my husband. It is mentally and emotionally difficult. You just feel that you are treading water the whole time." |
| Barclays has always said there are options for account holders in such a situation, but Mrs Toth said the bank's offer to switch the overdraft into a loan did not suit their financial plight. | Barclays has always said there are options for account holders in such a situation, but Mrs Toth said the bank's offer to switch the overdraft into a loan did not suit their financial plight. |
| Eventually, the family came into some inheritance, immediately paid off the overdrafts, and it means this is the first Christmas for years that the couple will be giving each other Christmas gifts. | Eventually, the family came into some inheritance, immediately paid off the overdrafts, and it means this is the first Christmas for years that the couple will be giving each other Christmas gifts. |
| How do overdrafts work? | How do overdrafts work? |
| There are arranged overdrafts, when current account holders borrow up to a limit agreed with, or offered by, the bank. About 19 million people use one each year. | There are arranged overdrafts, when current account holders borrow up to a limit agreed with, or offered by, the bank. About 19 million people use one each year. |
| Some banks also have unarranged overdrafts, with extra or higher charges for going beyond this limit or going into the red without permission, used by 14 million people a year. | Some banks also have unarranged overdrafts, with extra or higher charges for going beyond this limit or going into the red without permission, used by 14 million people a year. |
| About 7.3 million people use both types of overdraft during a typical year. | About 7.3 million people use both types of overdraft during a typical year. |
| Previous research by the FCA has shown that overdrafts were lucrative for current account providers. In 2017, firms saw an estimated £2.4bn in revenue from overdrafts. | Previous research by the FCA has shown that overdrafts were lucrative for current account providers. In 2017, firms saw an estimated £2.4bn in revenue from overdrafts. |
| Overdrafts in numbers | Overdrafts in numbers |
| Source: FCA, Financial Lives, October 2017 | Source: FCA, Financial Lives, October 2017 |
| For customers, the charges and fees were difficult to compare - with a mix of interest rates, daily fees, or monthly fees among banks. Those costs could be high even with a small debt. For example, someone could be charged £5 a day for borrowing £100 overdraft. | For customers, the charges and fees were difficult to compare - with a mix of interest rates, daily fees, or monthly fees among banks. Those costs could be high even with a small debt. For example, someone could be charged £5 a day for borrowing £100 overdraft. |
| More than three million people have dipped into an unauthorised overdraft in the course of a year, but the majority of unarranged overdraft charges were paid by only 1.5% of customers. They paid about £450 a year in fees and charges, the FCA said. | More than three million people have dipped into an unauthorised overdraft in the course of a year, but the majority of unarranged overdraft charges were paid by only 1.5% of customers. They paid about £450 a year in fees and charges, the FCA said. |
| On average, consumers in more deprived areas paid twice as much in charges for unarranged overdrafts than consumers living in less deprived areas, the FCA found. | On average, consumers in more deprived areas paid twice as much in charges for unarranged overdrafts than consumers living in less deprived areas, the FCA found. |
| What is the regulator suggesting? | What is the regulator suggesting? |
| The overdraft system would be overhauled, in what the FCA calls the "biggest intervention in the overdraft market for a generation". | The overdraft system would be overhauled, in what the FCA calls the "biggest intervention in the overdraft market for a generation". |
| Instead of arranged and unarranged overdrafts, the regulator is proposing a simple, single interest rate for customers going into an overdraft. | Instead of arranged and unarranged overdrafts, the regulator is proposing a simple, single interest rate for customers going into an overdraft. |
| There would no longer be any monthly or daily fees - like the ones charged to Mrs Toth. | There would no longer be any monthly or daily fees - like the ones charged to Mrs Toth. |
| Under the plans, banks would have to advertise their overdraft rate as a single annual interest rate, or APR. | Under the plans, banks would have to advertise their overdraft rate as a single annual interest rate, or APR. |
| A series of alerts and calculators would have to be offered to customers, and banks must identify anyone who looks as though they are getting into financial trouble and help them. | A series of alerts and calculators would have to be offered to customers, and banks must identify anyone who looks as though they are getting into financial trouble and help them. |
| Banks will still be able to refuse to make a payment if a customer does not have the funds to cover it, but any resulting fee for the customer must reflect that cost. | Banks will still be able to refuse to make a payment if a customer does not have the funds to cover it, but any resulting fee for the customer must reflect that cost. |
| Andrew Bailey, FCA chief executive, said that the system of charges was currently working against loyal bank customers. | Andrew Bailey, FCA chief executive, said that the system of charges was currently working against loyal bank customers. |
| "It is clear to us that the way banks manage and charge for overdrafts needed fundamental reform," he said. | "It is clear to us that the way banks manage and charge for overdrafts needed fundamental reform," he said. |
| "We are proposing a series of radical changes to simplify the way banks charge for overdrafts and tackle high charging for unarranged overdrafts. These changes would make overdrafts simpler, fairer, and easier to manage." | "We are proposing a series of radical changes to simplify the way banks charge for overdrafts and tackle high charging for unarranged overdrafts. These changes would make overdrafts simpler, fairer, and easier to manage." |
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