YOU could be one of the millions unknowingly paying hefty overdraft fees.
One in five current account customers go overdrawn by an average of £697 each day, according to research by TotallyMoney.
Thousands of people can claim back “unaffordable” charges from their bank[/caption]
An overdraft allows you to spend money or withdraw cash even when your account balance drops below £0.
However, this convenience often comes at a cost, as banks typically charge interest on the overdrawn amount.
The interest rate applied varies depending on your account type and an “affordability check,” which assesses your credit history.
Rates can range from 14.99% to a steep 49.9%, with the most favourable terms reserved for those with excellent credit scores.
As a result, millions of account holders find themselves owing thousands of pounds and stuck in persistent debt, as there is currently no cap on the amount banks can charge.
If you’ve been in the red for a long time, or can’t afford the overdraft, you may be able to claim a refund of charges.
Sara Williams, founder of advice website Debt Camel, says: “Anyone who is in their overdraft for most or all days of the month may be able to win an overdraft affordability complaint against their bank if this has been going on for more than a year.
“If you win the complaint you could get a refund of the interest and charges you have paid.”
You may also have grounds to claim if you informed your bank that you were struggling with repayments and they failed to offer support, or if they increased your overdraft to an unaffordable level.
Unfortunately, some customers spiral into deeper debt when banks fail to identify warning signs of financial difficulty.
For instance, lenders may overlook red flags such as falling income, rising expenses, rejected direct debits, or high credit card payments.
The financial regulator requires banks to assist customers struggling with debt.
With the wealth of financial data banks hold on their customers, they should be proactive in offering support to those in need.
So, if you believe you’ve been unfairly overcharged, you may be able to claim back the money.
The Debt Camel website has a whole page dedicated to explaining how to reclaim these unfair charges and we’ve summarised the key points below.
How do I know if I’ve been unfairly charged?
There are three different reasons that overdraft fees could be deemed “unfair”. These are:
1. The bank charges have caused you financial hardship
Lenders have a responsibility to treat you fairly if you’re struggling financially to stop you from being pushed further into debt.
So if you’re in financial hardship, it should be doing all it can to help you get back on your feet rather than making the situation worse.
Sara said that an example of financial hardship includes those that are in their overdraft for all or most of the month for a prolonged period.
The Lending Code defines hardcore borrowing as “the position where a customer’s current account overdraft remains persistently overdrawn for more than a month without returning to credit during that period.”
And according to the FCA, you’re also considered to be in financial hardship if:
- You’re failing to pay the minimum repayments on borrowed cash
- You have damaging marks on your credit file.
- Most of your income is going towards paying off the debt and you may have had to take out a loan to help pay for them.
- You’ve taken out a Debt Management Plan (DMP) or other debt solution.
- You’ve been talking to a firm, such as a charity, about taking out a debt management plan or how to get help.
You’ll also need to be able to back up each point with proof, such as letters and copies of your credit history or file.
2. You asked for help from your bank but they didn’t offer you anything
If you were struggling to keep up with repayments and asked your bank for help and it didn’t offer you anything, then any subsequent charges may be unfair.
Reasons for not keeping up with the repayments include mental health problems, losing your job or taking maternity leave.
The bank should have realised that you’re in a vulnerable position and offered help.
You will need to provide proof that you spoke to your bank, what you told them and that they didn’t help you.
3. Your bank increased your limit to an unaffordable level
You may also be able to argue that you were unfairly lent to if your bank upped your overdraft without you asking and you ended up with charges that you can’t keep up with.
It doesn’t matter if you asked for your limit to be increased or if the bank just offered you an increase.
In either case, the bank should have reviewed your situation before increasing the limit, according to Sara Williams.
How much can I claim back?
THERE is no set limit for the unfair overdraft fees you can claim back.
As long as you prove that you were in financial hardship when you were charged them you’ll get some money back.
Sara Williams said: “The main compensation you get is a refund of the interest and charges you paid during the period the bank should have realised the overdraft was unaffordable.
“So you still repay what you borrowed, but without any interest.”
But as there’s no set limit for what you can claim, these fees can easily add up to hundreds if not thousands of pounds.
For instance, Sara Williams mentioned that one customer who used her template letter received an £8,000 “goodwill” payment from Barclays, even though the bank denied any wrongdoing.
Figures from the FCA suggest that only 1.5% of customers are hit with these charges, but the majority end up forking out about £450 a year on them.
How do I reclaim the charges?
First, complain to your bank and say you were in financial hardship.
You do not need to know the exact dates that your limit was increased before complaining.
Banks will normally only look at complaints going back six years.
Gather proof of your situation, such as a copy of your credit file — it may show red flags proving you were in difficulty — missing payments — or that your overdraft was not affordable.
You can find a template letter, and a full guide for making a claim, at debcamel.co.uk/get-refund-overdraft.
Your lender has eight weeks to respond.
They may offer you a refund you are very happy to accept, or only refund the last year, even though your overdraft has caused you a lot of problems for a long while.
If your lender rejects your complaint or you’re not happy with what it offers, you can complain to the Financial Ombudsman Service for free, within six months of getting the letter from your bank.
Sara Williams said “This is easy – the Ombudsman has a simple online form you can use.
“But you must do this within six months of getting the decision from the bank, so don’t delay.”
How to get free debt help
There are several groups which can help you with your problem debts for free.
- Citizens Advice – 0800 144 8848 (England) / 0800 702 2020 (Wales)
- StepChange – 0800138 1111
- National Debtline – 0808 808 4000
- Debt Advice Foundation – 0800 043 4050
You can also find information about Debt Management Plans (DMP) and Individual Voluntary Agreements (IVA) by visiting MoneyHelper.org.uk or Gov.UK.
Speak to one of these organisations – don’t be tempted to use a claims management firm.
They say they can write off lots of your debt in return for a large upfront fee.
But there are other options where you don’t need to pay.
How can I borrow money cheaply?
Depending on individual circumstances, some borrowers may find it more cost-effective to use alternatives to an overdraft, such as a credit card with a 0% interest period.
These credit cards allow you to move more expensive debts you already owe on to a new card, and you won’t pay interest on this amount for a set period.
For example, Barclaycard is currently offering no interest for up to 32 months on its balance transfer cards.
Some people may also have savings they could turn to, rather than to help clear their debt.
Ideally, you will have built up an emergency fund which you can dip into — but sometimes that just isn’t possible.
Before you borrow cash, do your research and find out the cheapest option for you.
And remember to speak to your bank as lenders must help if you’re in financial difficulty.
If you are looking for a cheaper way to borrow, it’s also worth considering a loan from a credit union.
They are a much cheaper alternative to payday loans, and some can even get cash to you on the same day.
The interest rate offered on these loans is substantially lower than that offered on a credit card or overdraft.
Interest ranges from 12.7% APR (1% a month) to a maximum capped rate of 42.6% APR (3.5% a month).
