I drafted template letters, a staggering 6m+ were downloaded and over £1 billion was repaid as ‘goodwill’ by banks scared to go to court. Eventually the banks agreed to a test case against the Office of Fair Trading. They lost in the High Court, lost at the Court of Appeal (I even had a bank charges protest song in the charts – search ‘I fought the Lloyds’) but in 2009 the Supreme Court overturned those on a technicality, saying charges didn’t need to be fair. It may have been a court loss, but overall the campaign was a success, putting pressure on the banks to lower their hideous £35ish per transaction penalties. They’ve been dropping since, and now, a decade later, finally, unfair bank charges for busting your overdraft limit are going to end. Here’s the need-to-knows.
From 6 April 2020, overdrafts will be overhauled
The regulator the Financial Conduct Authority (FCA) has announced that from 6 April 2020, all daily overdraft fees will be banned and replaced with a single interest rate. This will cut costs for many and allow an easy comparison with other forms of borrowing.
Plus as explained, banks and building societies won’t be able to charge extra for busting your arranged overdraft limit.
They’ll still be able to refuse to make a payment if you go over your arranged overdraft limit, and can charge you a small fee, in proportion to what it costs them to refuse the payment – but that’s exactly what I was campaigning for all those years ago.
If overdrawn now, see if you can cut costs to zero percent
I’ve always encouraged people to switch banks, to improve service, grab free cash, and get better terms. But often those with overdrafts are stuck either due to a poor credit score, or because an arranged overdraft has grown over the years with your existing bank – making it far too big to switch.
Yet while it isn’t possible for everyone, it’s always worth looking at what you can do. Full help is at mse.me/cutoverdraftcosts but briefly…
Overdrafts under £500. Switch to www.firstdirect.com and if accepted you’ll get £100 and most get a £250 ongoing zero percent overdraft too. So if your overdraft’s up to £350, it pays some off and the rest is interest-free. Even with slightly bigger overdrafts, it’s cheapest. To keep it fee-free you need to pay-in £1,000/month (salary paid in circa £12,500/year).
Overdrafts up to £1,500ish. If your credit score isn’t too bad, the www.nationwide.co.uk Flex Direct account gives a year’s zero percent overdraft. The limit depends on your credit score, but it can be far bigger (I’ve heard some getting £1,500 interest free). See this zero percent year as time to clear what you owe, as after that you’re currently charged 50p a day (don’t know what it’ll be from April next year) – which is cheap for bigger overdrafts, costly for smaller ones.
Shift it to zero percent card. A few specialist money-transfer credit cards let you pay cash in to your bank to pay off your overdraft, then you owe it instead. This is complex though, and easy to get it wrong, so see my full mse.me/moneytransfer guide for help.
Can you reclaim bank charges?
If you’ve ever had repeated bank charges over the years for busting your arranged overdraft limit, and this has caused substantial financial hardship, you may be able to reclaim.There’s no need to pay anyone to do this.
There are free template letters to help at mse.me/ReclaimBankCharges. Remember if the bank rejects you – go to the Ombudsman, that’s where you’re most likely to get justice.
Really stuck? Get free debt help
If you’re really struggling to manage all debts, then talk to a free non-profit debt counselling agency like www.citizensadvice.org.uk, www.nationaldebtline.org or www.stepchange.org. Don’t worry they’re there to help, not judge – and banks take them more seriously than you trying to sort it yourself.
Martin Lewis is the Founder and Chair of MoneySavingExpert.com. To join the 13 million people who get his free Money Tips weekly email, go to www.moneysavingexpert.com/latesttip