Hey, at least the Guardian article is actually pretty decent.
I was also surprised! The guardian printing a readable article… Whatever next!
Digital bank Monzo becomes Britain’s best-rated lender
It is! It’s a shame they’re reporting on this ‘controversy’ that has been entirely created by The Times though.
I think it’s perfectly reasonable. Monzo aren’t allowed to lend people money to invest, but the line in the prospectus is a little ambiguous. There’s nothing wrong in mentioning it in my view.
I don’t think it’s unreasonable to bring the interaction between overdrafts and investing up as a potential issue. What irks me about the article - particularly the original one - is there’s no attempt to provide context or balance. You can use the overdraft from any bank to invest in that bank (or invest in any shares for that matter). Not once mentioned by The Times. If they think the issue doesn’t apply to other banks, they should have stepped through the argument why they feel that’s the case rather than single out Monzo with no consideration of other banks.
The original headline is utterly misleading, as in a banking context, ‘lending’ means conciously approving a loan, of a set amount, for a particular purpose. An overdraft doesn’t fulfil this criteria, therefore Monzo are not ‘lendng’ to allow customers to buy shares, to put it accurately, they have chosen to allow customers to use all of their available funds, including an overdraft allowance.
I understand, and that’s why there are no legal issues. But I can also see there is a potential discussion to be had as to whether banks should have a responsibility to actively discourage (or perhaps even prohibit) use of their overdrafts for certain purposes. I don’t really have an opinion on this as it’s not something I’d ever given any thought to prior to The Times article. This should be an industry-wide discussion though, not just focussed on Monzo.
How can any bank prohibit something like that though? First Direct have given me a free £250 overdraft. If I want to I can take that out in cash and do anything I like with it.
The bank can’t prevent me under those circumstances so preventing me transferring the money elsewhere will only ever be a halfhearted effort.
Isn’t that the same for most things though?
Gambling block? You can switch it off or use a different bank, but it doesn’t stop Monzo from doing their best to help people.
The same could be argued for the purchase of shares from within the Monzo app using an overdraft.
They “could” prevent this if they so wished.
It wouldn’t stop you transferring money into your Monzo account from a different overdraft of course, but it would add a bit of friction which may be enough.
Hypotheticals of course
Yeah prohibiting is impractical, but actively discouraging use of an overdraft for certain purposes when you sign up for the overdraft or enter that overdraft would be practical (something along the lines of ‘smoking can kill you’ or ‘drink responsibly’, but with a financial health message). Again, a potential discussion to be had, not something I necessarily support.
Very true although if I’ve opted into the gambling block I may well have closed my other accounts to avoid that sort of temptation. Personal responsibility is never ceded to the bank which is what people seem to expect in the overdraft case.
But it’s true that this is why some of these things are only as good as the number of banks that implement them.
seems a bit impractical really - the scenario could be you sign an agreement with one bank to not allow investment in shares with your overdraft and then just transfer the money into another bank - Ive used it for a transfer - I now chose to buy shares - are you then as a customer obliged to inform your first bank you have gone against their T and Cs - do they then demand their money back - why would you inform the original bank
Minor but important point. This is opt in, not opt out.
Once you have opted in, you can of course then opt out again, but its important for other people reading to be clear that it is not on by default.
They appear to have used MetroBank in the Philippines logo (which was also dropped in 2007).
Monzo is now a Which? Recommended Provider along with First Direct, Nationwide Building Society and M&S Bank.
I would be curious to know if that approval rate this holds true given all the issues now with slow customer service etc.