unarranged overdraft

Ministers have set down new standards on unarranged overdraft charges.

For unarranged overdrafts the fee is £5 per day.

Such customers could avoid an unarranged overdraft, or arrears on a loan or mortgage.

But the regulator admitted that the third problem it had identified with banks, unarranged overdraft charges, was still unresolved.

"It is also a condition of the case on fees for unarranged overdrafts that banks process claims for those in financial hardship.

The watchdog began its inquiry into personal bank accounts in spring 2007, alongside a separate investigation into the terms of charges for unarranged overdrafts.

This year the OFT lost a high-profile lawsuit over the fairness of charges on unarranged overdrafts.

The banks will also produce "illustrative scenarios" showing unarranged overdraft charges, giving consumers an idea of the costs for different patterns of use.

A British Bankers’ Association spokeswoman said: “Banks believe the fees customers pay for unarranged overdrafts are fair and clear.

"The OFT set out its concerns in relation to unarranged overdraft charges as part of its 2008 market study.

In the OFT's 2008 report, the watchdog revealed that charges from unarranged overdrafts brought in 30% of their current account revenue.

The Standard account charges 50p a day for arranged overdrafts (capped at 20 days a month) and £5 a day for unarranged overdrafts.

They include fees for unarranged overdrafts or rejected payments, as well as late payment or exceeding a credit limit on credit cards.

A spokesman for the OFT said: "Unarranged overdraft charges are difficult to understand, not transparent, and not subject to effective consumer control.

"The OFT will now consider the detail of this judgment before it makes a decision on whether or not to continue its investigation into unarranged overdraft charging terms.

A study by his agency "found that consumers paid little attention to unarranged overdraft charges and forgone interest" which make up the vast bulk of banks' revenues, Fingleton said.

"This found that banks earn around a third of their retail revenues from unarranged overdraft charges that are difficult to understand, not transparent, and not subject to effective consumer control.

Indeed there has been strong public dissatisfaction with aspects of bank pricing, such as unarranged overdraft charges and widespread mis-selling in the case of payment protection insurance (PPI)."

"This means that for those customers who currently have an outstanding complaint about unarranged overdrafts, we'll be writing to them shortly to let them know what today's judgment means for them.

If you go into your unarranged overdraft and are overdrawn for two days in a row, and two payments come out of your account in that time, it will cost you £60.

A spokesman for the British Bankers Association said: “We shall examine the new case that Martin Lewis presents but we maintain that fees for unarranged overdrafts are fair.”

RBS/NatWest has said its "cost neutral" changes will help it to ease the burden on those who are drowning in debt by lowering the charges it places on people who plunder their unarranged overdrafts.

The review follows a report from the OFT in 2008 which found a "complexity and lack of control" over unarranged overdraft charges, low levels of transparency of charges and other costs, and problems with switching providers.

It said: "The OFT is disappointed by today's Supreme Court judgment, which overturns previous High Court and Court of Appeal rulings that unarranged overdraft charging terms can be assessed in full for fairness.

It said: "The Supreme Court has today confirmed that the banks' unarranged overdraft charges are an important part of current account services which the banks provide to their customers and that the amount of those charges is not assessable for fairness."