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Banks still Hammering their Customers on Overdraft Fees

Evidence published today (Thursday 10th June 2010) by Citizens Advice Scotland (CAS) shows that Scotland’s main banks are still ‘hammering’ their customers by imposing unfair overdraft fees.

The evidence comes in a major new report, ‘Fully Charged,’ which is based on case evidence collected by CABs all across Scotland. Its findings are being backed by top Scottish politicians, with supportive motions being lodged in Holyrood (by Wendy Alexander MSP) and in Westminster (by John Thurso MP).

The report’s main findings include:

  • People go into overdraft for reasons which are often not their fault, yet they are penalised anyway.
  • People on low incomes are hit hardest of all by unfair fees – indeed the poor are actually subsidising the rich (a “reverse Robin Hood effect.”)
  • After hitting people with high fees, banks often make things even worse by offering them the ‘solution’ of a consolidation loan, thus forcing many customers even further into debt.

Publishing the report today, CAS Acting Chief Executive Susan McPhee said,

“Despite all the talk from banks about how they were going to be more responsible and help people through the recession, here we see the real story – the banks are still imposing heavy charges on vulnerable people. CAB advisers all across Scotland deal with case after case of people who have been hit by huge overdraft fees.

“What is particularly disappointing is that the people who are worst hit by these charges are those who can least afford to pay them. You have to pay the same amount regardless of your income. So, while the charges are unfair for everyone, those who are poorest are having to fork out a much higher proportion of their income than those who are better off.

“Indeed, these charges mean that the poor are actually subsidising the rich – like a reverse Robin Hood effect!

The report finds that many people go into overdraft for reasons that are no fault of their own – e.g. sudden job loss, a fall in income, a delay in receiving wages or benefit payments, or even processing mistakes by the banks themselves. Yet they are still penalised by overdraft fees. Susan McPhee continued,

“If you have very little in your account, you are always on the verge of going into overdraft. So, if you suddenly lose your job, or a deposit into your account is delayed for a few days, and your Direct Debits go out of their account as usual, then you will be in overdraft and will be liable to pay these fees – even though it is not your fault.

“We’ve seen cases where a client with mental health issues built up an overdraft of £180 in 2 months – for an overdraft of just £2. Another client was hit with £66 in charges for being just 60p overdrawn. Another bank charged a 77-year old pensioner £300 in just one month because of one bounced transaction. These cases are at the extreme end, but they are not rare. And the fact they are happening at all is appalling.”

A court case last year ruled against the Office of Fair Trading (OFT), which was trying to make changes to the laws governing the setting of overdrafts. CAS is now calling for the government to legislate. Susan McPhee continued,

“We were extremely disappointed when the OFT court case ruling sided with the big banks against the interests of their customers. The bottom line is that we can’t allow this to go on. We are in a recession, and people are struggling to get by - yet they are still being exploited. If the banks themselves will not act fairly then the government should force them.

“After all, it’s only a year since the public bailed out the banks and saved them from disaster. It’s time the banks paid people back for that.”

A pdf of Fully Charged is available on our website, along with a summary briefing sheet. A summary of the report’s main findings is given below.