Coronavirus has already cost thousands of workers their jobs, and more are facing the hardship of living on statutory sick pay – meaning many across the UK are likely to need to fall back on their overdrafts.
Unfortunately, that comes at almost exactly the same time as a planned increase to overdraft interest rates to nearly 40% kicks in.
Though many are predicted to benefit from some of the changes, there are calls mounting for banks to ameliorate the charges for those who come off worst.
HSBC on Friday announced a temporary £300 interest-free buffer on overdrafts – the equivalent of a week’s minimum wage – for customers with bank accounts and advance accounts for three months, to help those hardest-hit by the financial impact of coronavirus.
Tracie Pearce, HSBC UK’s director of Retail Banking said: “The recent changes to our overdraft structure meant that seven in 10 customers who went into the red would see no change in cost or it would cost less, with those using an unarranged overdraft, who are potentially the most vulnerable, benefiting most from these changes.
“With this temporary buffer for the first £300, up to nine in 10 customers who use an overdraft will see no additional cost, based on our previous structure.”
According to the Financial Conduct Authority (FCA), some 19m people use an arranged overdraft each year, and 14m use an unarranged overdraft.
Firms made about £2.4bn in revenue from overdrafts in 2017 – around 30% of which came from unarranged overdraft fees and charges.
New rules are coming into force on April 6 which clamp down on complicated overdraft charges, meaning banks will no longer be able to charge daily or fees on unarranged overdrafts, instead offering customers an annual interest rate.
Banks also won’t be allowed to charge higher fees on unarranged overdrafts than arranged ones, after it emerged that the daily rates on some unarranged overdrafts were as high as payday loans.
Most of the major high street banks have settled at a new interest rate of around 40%.
— Mary Novakovich (@mary_novakovich) March 18, 2020
Has there been much call to demand that banks postpone those huge overdraft rate increases due to start next month?
— Amelia Horgan (@joan0fsnark) March 20, 2020
Would it be unreasonable to expect that banks could waive overdraft fees and credit card interest for the foreseeable while the UK find out whether they’ve got jobs/wages etc.
Also think late bill payments shouldn’t be penalised atm ?♀️
— You know me (@undercoverjulie) March 16, 2020
The planned changes are likely to be good news for people – often some of the most vulnerable in society – who regularly spend long periods in their unplanned overdraft. But others who find themselves dropping in and out of their planned overdraft are likely to find themselves facing higher charges.
In January the FCA said it had written to high street banks to express its concerns about the steep increases in overdraft interest rates, stating that it was keeping a “close eye” on lenders, the Independent reported.
The FCA confirmed to HuffPost UK on Friday that almost two months on there had been no movement from the banks since the letters were sent.
Bank Rate cut to 0.1%. So £1 a year to borrow £1000. Overdraft rates due to double to 39.9%. So £399 to borrow £1000. Am I missing something? (PS I know this has been long planned as a response to regulatory changes but banks! The optics! Think about it!!)
— Paul Lewis (@paullewismoney) March 19, 2020
Lloyds said most of its customers would pay less interest under the new model, with the 10% who pay more seeing an average increase of less than £2 a month on the cost of borrowing money. A spokesperson promised “temporary changes over the coming weeks” but could not specify what they were. Lloyds is one of the lenders offering mortgage holidays to those feeling the pinch.
Santander gave a similar response, saying six out of seven customers would pay less under the new charging structure and stating it had “a team of experts on hand to support customers who have been impacted by the coronavirus”.
A spokesperson for Nationwide said: “Nationwide recognises the benefit that access to short-term borrowing has for our members during these uncertain times. Borrowing £500 for a day with the Society would cost just 46p. The Society also does not charge any fees for unarranged borrowing. We do not have any plans to reduce our overdraft interest rate at this time.”
A spokesperson for RBS said: “We have done extensive work on understanding the impact of this price change on our customers and 70% of them will be better off or the same as a result of it. If any customer is in need of support with their overdraft, they can speak to us to access a range of options available.
“We are currently planning to go ahead with the price change as it will result in more than 50% of our customers paying less for their overdraft. Unlike some of our competitors, we will also continue to offer unarranged lending at a significantly lower cost than today for those customers needing to access emergency borrowing.
“For those impacted by this change or those impacted by coronavirus, we will be deploying a range of tools to support them with their finances as needed.
RBS was also approached for comment.