BANK of Scotland has been accused of hitting vulnerable customers the hardest with a £1-a-day overdraft charge coming into force in December.
As the latest letters informing customers of the new levy landed on doorsteps this week the backlash from angry customers intensified. The taxpayer-backed bank's new charges – under which in theory a customer with a £1 overdraft could face the e
quivalent of 36,500 per cent APR – have also attracted fierce criticism from organisations ranging from the Church of Scotland to Citizens Advice.
From 6 December, customers with authorised overdrafts up to £2,500 will pay £1 a day each day they are overdrawn, with the charge doubling for authorised overdrafts above £2,500. Unauthorised overdrafts face daily charges of £5, although no other overdraft fees will be charged.
The bank currently charges interest of 19.5 per cent on arranged overdrafts, while unauthorised overdrafts incur charges of 28.8 per cent, plus extra fees of up to £35.
Customers with student, easycash or cardcash accounts will not be affected.
Bank of Scotland is advising customers unhappy with the new fees to switch to its reward account, which pays £5 a month if they pay in at least £1,000 each month.
Dominic Lindley, personal finance campaigner at consumer group Which?, said: "This is bad news for any Halifax and Bank of Scotland customers who regularly use their overdraft as it's effectively a big hike in charges."
Most affected will be customers with a low authorised overdraft limit, such as Scotsman reader Kate Murray. A part-time nurse from Aberdeen, she only uses her agreed overdraft facility when her son, in university, needs financial support.
"I am never really overdrawn because although I don't have a lot of money I am careful with it," she explained. "The only reason I got the overdraft facility was as a safety net for my son and I always pay it back as soon as I can."
Until now Kate has benefited from a low-cost £100 overdraft limit, but from December she will pay for each day that she is overdrawn, regardless of the amount.
"I am so appalled and angry that a bank can do this. They told me that if I paid in £1,000 a month I would get £5, but I am only part-time so I cannot do that," she said. "It is going to put an awful lot of people into scary debt, especially the vulnerable customers."
Kaliani Lyle, chief executive of Citizens Advice Scotland, said all banks were guilty of imposing excessive charges. "Far from helping people through the recession, banks are only making the situation worse with charges like these."
But Lyle described the new Bank of Scotland charge as "particularly harsh". "It is neither fair nor proportionate, and the people it will hit hardest are those who are most vulnerable," she said.
A spokesman for Bank of Scotland said the new charging structure would be simpler to understand and claimed that only a minority of its customers used their overdraft facility in an average month.
"For those customers who use their overdraft on a more regular basis we have specifically asked these customers to contact us so we can review their banking needs and ensure they are in the best account for their individual circumstances," he said.
Banks are amending their charging structures in anticipation of a cap on overdraft fees, which is the likely outcome of a long-running court battle between the banks and the Office of Fair Trading aimed at clarifying the fairness of the current charges. The case is currently with the House of Lords and a decision is expected before Christmas.
RBS has also introduced changes, with fees for bounced cheques cut from £38 to £5 as of 1 October. It also halved the fee for paying an item on an overdrawn account to £15 and reduced the monthly overdrawn account charge to £20, from £28.
But what can Bank of Scotland customers do if they are adversely affected by the new charges? Some customers, including Kate Murray, are taking their business elsewhere. Lindley commented: "Anyone who's unhappy with the new charging structure should vote with their feet by shopping around and switching to a current account that best suits their needs."
Most banks will accept customers who have an authorised overdraft and a history of using it sensibly. Andrew Hagger, head of communications at Moneynet, recommended the current accounts offered by Abbey and Alliance & Leicester.
The latter's Premier Direct account requires customers to pay in at least £500 a month, but offers 6 per cent in-credit interest and a 0 per cent overdraft rate for the first year. Thereafter agreed overdrafts are charged at a flat fee of 50p per day but up to a maximum of £5 a month.
The Abbey current account (preferred overdraft option) has an interest free overdraft for 12 months and then reverts to 12.9 per cent, although at least £1,000 must be paid in each month.
How you might be affected by the changes
IT DEPENDS on how much you are overdrawn by and for how long. If you are typically overdrawn by just a small amount but for a large proportion of the month, you will probably be worse off. If you tend to be overdrawn by large amounts for short periods, your charges should fall.
Those with an agreed overdraft between £2,000 and £2,500 will especially benefit. For example, an average overdraft of £2,200 at present incurs a £33 a month charge, whereas the most they will pay from December will be £31.
Hardest hit will be customers who are overdrawn within their authorised limits for most of the month, said Moneynet head of communications Andrew Hagger.
For example, those overdrawn by £100 for the whole month pay a £1.50 a month charge, or £18 a year. The new system will increase their charges to £365 a year.
Hagger offered the following examples of how the change will affect different customers:
If you use an authorised overdraft for 20 days a month:
• Average £200 – will pay £20 a month, up from £2.13 interest at 19.5 per cent
• Average £500 – will pay £20 a month, up from current £5.34 interest at 19.5 per cent
• Average £1,000 – will pay £20 a month, up from current £10.68 interest at 19.5 per cent
If you use an agreed overdraft for ten days a month the charges will be lower:
• Average £200 – will pay £10 a month, up from £1.07 interest at 19.5 per cent.
• Average £500 – will pay £10 a month, up from £2.67 interest at 19.5 per cent.
• Average £1,000 – will pay £10 a month, up from £5.30 interest at 19.5 per cent
