Bank Charges for Unauthorised Overdrafts
There is a lot of media attention over banks and the bank charges that they apply for going overdrawn, essentially it is claimed that these are unfair bank charges. It all boils down to there being a difference in the eyes of the law between a “breach of contract” and a “Penalty”. A bank can apply a charge for any breach of contract (such as going overdrawn or for a bounced cheque) however the sum must reflect actual costs incurred and not exceed damages the bank suffered due to the breach of contract, otherwise it becomes a penalty, which is unenforceable by the courts.
You can try to claim back any excessive bank charges, which the law would class as penalties. These will be anything over and above what an infringement costs the bank.
As part of Whatprice’s campaign for clearer pricing our secret shopper has taken a look at the major banks and building societies websites to find out the typical charges (or penalties) that apply to going overdrawn.
All overdraft fees are from the banks ‘typical’ current account and are taken from their websites. Theses charges may vary in practice due to personal circumstances
| Bank or Building Society||Unauthorised Overdraft Fee ||Details of Overdraft Fee |
|LLoyds TSB||£30|| per day, up to £90 a month|
|Barclays||£30||per day, up to £90 a month|
|Natwest||£28|| details are not easily available on the web!|
|HSBC||£25|| first overdraft fee is usually waived?|
|Nationwide||£20|| up to £20 a month, i.e 1 charge per month!|
|Alliance and Leicester||£25|| up to £50 a month|
|Halifax||£28||details are unclear|
In general the websites were good and providing easy access to the ‘rates and charges’ pages. Some were better than others however! Natwest kept referring to a ‘rates and charges’ leaflet that could not be found on the bank website
HSBC did not provide particularly clear linking to their bank charges. They provide a pop up box that links to a series of PDF files, some of which contain some ‘fair fees policy’, its not entirely clear but it looks like your first overdraft fee is waived and subsequent fees are £25. However it does not states whether this is a per day, week or month charge.
Nationwide offer a particularly low overdrawn charge and only apply this charge once a month, thus offering a saving of £70 a month over the higher charging banks. They also offered one of the lowest unauthorised overdraft rates at 24.9%
Note that our secret shopper is just looking at the bank charges for going overdrawn and has not considered the bank overdrawn rate at all. Typically for an unauthorised overdraft this can be a whopping 24-28% fee. That is up to £28 per year for every £100 overdraft!
If you get an agreed overdraft limit that this fee often is reduced to a slightly more reasonable 8-10%, so if you are in financial difficulties and think you may go overdrawn you should talk to your bank or building society
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"6/9/10 Halifax now charge £5, yes £5, PER DAY your accounti is overdrawn, NO MATTER HOW SMALL THE AMOUNT. There is one word for this - it is called USURY."
Alfred of Wessex.