Massive change coming to overdrafts in new crackdown on banks- what’s now banned
It’s early so I may not be reading this correctly, but seems like Monzos overdraft falls into the gotta change category?
It’s still a consultation but yes, would have to change to an APR, which is a bit crappy
Yep it does look like that at first glance.
Hmmmm depends on usage cases. I think it would be great personally. Anyway let’s see how it all works out. Maybe the above might not come to pass, we shall see.
Monzo wanted their overdraft to be easy to understand so customers could make their own decisions on things.
From the looks of it, whilst nothing will ever be easier to understand than “50p per day”, the new rules would allow consumers to compare overdraft rates in a singular way, and be able to make the most informed decision out there.
There are undoubtedly people using the Monzo overdraft that don’t realise it’s more expensive than an alternative, but with the various metrics of comparison, it’s pretty difficult to compare like for like.
This looks like a great move that will help those most in need!
The main points in the consultation about unarranged charges and helping those in debt are desperately needed. Hopefully there will be some movement on those
I hope this passes. I still fundamentally believe that with less borrowed you should pay less interest.
Appreciate the simplicity of “per day” but I’m sure we can come up with a way to show simply the amount of interest that will be taken on a specific date in advance.
It’s quite immortal from Monzo to charge overdraft when you have money on pots. this is one thing Starling does better.
I can’t get over this stat “About 30% came from unarranged overdrafts, with most of that coming from just 1.5% of customers in 2016”.
Also interestingly it looks like Monzo might be in breach of the new rules if they are the same as stated in the article
" Ensuring the price for each overdraft will be a simple, single interest rate – no fixed daily or monthly charges."
You don’t think it more likely that they’ll change the charging model? Why?
This is interesting because wile I’ve reached the point of recognising that the 50p is much clearer than any interest rate (which I’d still need a calculator to get a daily cost out of) yet the inequity of charging raises issues of ‘fairness’, whatever that looks like.
My question is as follows… What is the responsibility of a bank in these circumstances? To make borrowing as cheap as possible (and risk accusations of luring people in), to try and discourage people from spending what they don’t have (and risk accusations of nannying) or to remain neutral and charge for a service (and risk accusations of not caring)?
(FWIW I don’t think the 50p fits any of these categories)
But isn’t the question about visibility and understanding here (whilst removing the predatory approach to unauthorised overdrafts and the like).
If every bank displayed their overdraft fee in the exact same way (whatever that may be), then people could make a decision based on a better understanding.
If that as indeed a flat fee, then so be it - Someone could come along with a 40p per day overdraft if they wanted.
But it’s very hard to compare a per day overdraft, to the various other ways banks advertise their fees.
Yeah, I fully agree with that, but I’ve reached the point where I just don’t think that anything involving interest rates is ever going to be clear so I don’t think the conclusions reached achieve the aims expressed.
I know my question abstracts from this and broadens things out but I think you need to know what your purpose is before you can decide how best to illustrate it.
In looking around for savings accounts recently the APRs and the AERs and all the rest were just bamboozling in the end. I still don’t understand the definitions without looking them up. I like to think I’m not stupid (my engineering career may suggest otherwise ) but the way stuff is expressed ‘for ease of comparison’ just isn’t. A percentage means nothing in cash terms without calculation effort which I think is the big issue here.
I’m no expert but I imagine some coding could do this for you.
When I had something similar to an overdraft in the US, the online banking website had a “Interest accrued to date” widget, which showed what I owed at that time, my daily charge (based on my current balance), and the date the charge would be made. If I wanted, I could pay early with a button.
This was in 2009. I’d like to think we can surpass this idea that you’d need a calculator
Yes, for sure and once you’re using the overdraft I don’t really see an excuse for not giving a daily cost figure. It’s more about how you advertise that in advance of taking the loan or opening the account?
Maybe a table of ‘£100 would cost … per day’ for different values would do it, as long as everyone used the same values.
I’d say possibly a range: the APR (or monthly interest % - though I know the law is a bit strict in that regard) and a standard, typical amount - maybe £100, maybe £500, maybe £1,000.
I could be persuaded to a ‘for every pound you borrow you will have £x per month added to what you owe us’ type of presentation I think. That sort of encompasses the compound nature of the interest as well as giving a clearer cost.
(Having started off frowning at the 50p thing when it came in, I find it slightly ironic that I’m now looking for a figure in pounds and pence as the clearest way to define the cost of borrowing. Albeit one associated with an interest rate rather than a fixed fee.)
I suspect that would be simple but super low sounding and might encourage higher debts. If it was every £1 you pay 5p then it might not be easy to quickly assess what cost a £500 or £750 overdraft might be.
A basic way of cross checking should really just be the % charged. If all banks did this, you’d see straight off who is the cheapest. You could then further have a slider like many loan applications have. Fairly simple.
For the record I have never liked daily charged fees at all, but I DO think a simple way of finding out how much you will owe is essential. I just have never believed that you cannot get a simplified charge without a daily fee.