Overdraft Misery For Expats With UK Banking

Lisa Smith, BA (Hons), CeFA
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British expats who still hold UK bank accounts are about to face a shock increase in charges when they go into the red.

Thousands of expats around the world cling on to their UK bank accounts when they move abroad.

Many receive their pensions, rents for letting homes and pay bills from the accounts.

But new rules that come into force from April 6, 2020, will see the cost of running an account with an overdraft soar – and around one in four customers are expected to feel the impact.

The main measure demands banks and building societies set an annual borrowing rate for overdrafts in place of fixed fees or monthly charges, while setting separate prices for arranged and unarranged borrowing is banned.

£2.4 billion cost of going into the red

In 2019, banks earned £2.4 billion from overdraft charges – with £720 million coming from unarranged borrowing.

The banks have responded to the changes by setting the rate at up to a massive 40% – bank by bank, the charge is:

  • HSBC, First Direct and M&S Bank – 39.9%
  • NatWest – 39.49%
  • Barclays – 35%
  • Nationwide – 39.9%

Lloyds Bank have set a charge of up to 61%.

The overdraft rules are part of a crackdown on unfair bank charges by financial watchdog the Financial Conduct Authority (FCA).

Complex and opaque charges

Andrew Bailey, the FCA chief executive, said: “The overdraft market is dysfunctional, causing significant consumer harm. Vulnerable consumers are disproportionately hit by excessive charges for unarranged overdrafts, which are often ten times as high as fees for payday loans.

“Consumers cannot meaningfully compare or work out the cost of borrowing as a result of complex and opaque charges, that are both a result of and driver of poor competition.

“Our radical package of remedies will make overdrafts fairer, simpler and easier to manage. We are simplifying and standardising the way banks charge for overdrafts. Following our changes we expect the typical cost of borrowing £100 through an unarranged overdraft to drop from £5 a day to less than 20 pence a day.”

However, an overdraft of £1,000 a year will still cost bank customers around £1 a day at an interest rate of 39.9%.

The FCA has written to banks asking for evidence of how they arrived at pricing interest rates on overdrafts.

“We will be keeping a close eye on the market and we will act should we see continued harm,” said a spokesman.

The rules do not apply to overdrafts of £10,000 or more.

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