Martin Lewis: Unfair bank charges are coming to an end

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.

1. 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 you to compare the cost of your overdraft more easily 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 will 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.

2. If overdrawn now, see if you can cut costs to 0%

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 0% 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, but that’s just a way of saying pay your income in (circa £12,500/year salary).

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 0% 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 0% 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 0% 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. Providers offering this usually include www.tescobank.com, virginmoney.com and www.mbna.co.uk. Up to 28 months 0% is available, though you pay a one-off fee of up to 4% of the amount shifted.

This is complex though, and easy to get it wrong, so if you’re doing it see my full mse.me/moneytransfer guide for help.

3. Can you reclaim bank charges?

The fact that mainstream bank charges sadly ended with that Supreme Court ruling hasn’t changed. Yet, 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. The most important thing to remember is that if the bank rejects you – go to the Ombudsman, that’s where you’re most likely to get justice.

The amount can be serious, Holly tweeted me to say: “@MartinSLewis thanks to your advice I have received £923 from NatWest for unfair overdraft charges. Very happy.”

4. Try to shift your direct debits to minimise fees. If you’re overdrawn, ask the companies you pay to shift your direct debits to just before you’re paid. This can mean you’re in the red for less time, meaning fewer charges – but budget carefully and don’t forget those bills are coming.

5. Stick to a tight budget and repay a set amount each month. For example on a £500 overdraft, to clear £50 a month, budget that after a month and the overdraft’s £450, month two £400 and by month 10 it should be gone.

6. Struggle to control spending? Shift to a no-overdraft account. Basic bank accounts provide a no-frills, no-overdraft current account service. And if you spend when you’ve not got money, while it’ll still be rejected, there’s no charge. Ask for these accounts at www.barclays.co.uk or www.co-operativebank.co.uk or app-based www.starlingbank.com.

6. If you can’t get a cheaper overdraft speak to the bank. With banks (and all financial firms) you’ve a regulated right to be ‘treated fairly’. If you’re in trouble, call up your bank and politely remind it of this, and ask if it can waive fees, reduce interest or find another way to help, as your situation isn’t fair.

7. 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