Monzo new overdraft fees?

Due to new regulations Nationwide announced new overdraft fees from November. Any information/updates from Monzo?

Nationwide overdraft rate 39.9% APR for all accounts, free £250 buffer on FlexPlus account will be removed.

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Oh, wow, Nationwide won’t be losing any money after the changes with that APR.

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Monzo haven’t announced their new charging structure yet. The new rules don’t come into effect until April 2020 so an announcement could be anytime between now and then.

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Ouch!

I have a Nationwide Flex Plus account. I don’t use the overdraft but those fees make my eyes water.

I hope that Monzo takes advantage of its low cost base and really plums for a lowish APR. If they could get near, or below, Starling’s I imagine it would put them at/near the top of the best buy list once this has all settled down.

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Surely no one expected overdrafts to stay at the same interest rate they currently are for arranged borrowing, after the imposed FCA changes?

Not even the FCA expected that.

Jesus 39.9%!

The FCA have managed to make the situation worse!

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Worse for some. Better for others. Isn’t that kinda what they are trying to achieve, to better protect the vulnerable?

The FCA said the current overdraft market was “dysfunctional” and “causing significant consumer harm”. There are 26 million UK overdraft users, and they are a huge cash cow for banks, which made more than £2.4bn from them in one year alone (2017).

Staggering!

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It was always going to IMHO - they told the banks that “arranged” and “unarranged” overdrafts are the same - so they’ll err on the side of caution and just rinse the customers for what they’re worth!

Its weird because as you say they aren’t really making those who the FCA identified as needing the best rate of overdraft (but unable to get arranged ODs) get the best rate.

Ahh the FCA.

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Define worse.

Well, whether or not the FCA have made it more expensive for people to go overdrawn depends on who they bank with and how often they use their overdraft, and by how much. Nationwide says two thirds of their borrowers will pay more.

But I generally think the FCA has made things worse by restricting choice. Now it is much harder for everyone to know at a glance how much they will actually pay every day they are overdrawn.

The FCA has a moronic idea that suddenly the financially illiterate will begin to use online calculators to see how they could pay, or by how much they would benefit by shopping around.

My issue, apart from the fact people just won’t do that, is that these calculators could easily have been set up to incorporate every bank’s different style of charging, allowing Monzo and others to keep a daily fee (which, although not the cheapest is very transparent) and still be compared against the competition. You do not need an APR to make a comparison if you’re using a piece of software to calculate the comparison for you.

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But easier to compare providers to see who is the cheapest as they will all now have to play by the same rules?

You make one point that people aren’t just going to start using online calculators and I agree, but you then make another point that the calculators could incorporate all the different kind of charging models and again I agree. However, given the first point the second one really has no consequence.

When people don’t or can’t understand their finances themselves so that they can make informed choices, we end up with regulation to “protect” those people.

Education is the key and as a educator myself I am still surprised that we don’t include comprehensive financial education in schools.

What’s Starlings?

I know we’re scoping this internally and as ever it’ll go into staff testing first to check the backend works.

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15% EAR

And that’s the actual rate you’ll pay. Interest is accrued daily and charged on the 15th of the following month – and it’ll always be updated clearly in your app.

Gone over the limit?

If you go over the overdraft you’ve agreed with us, we’ll only ever apply our standard interest rate and cap your charges at £2 for anything unauthorised.

I agree with all the points you make.

Having been against the proposed charge of 50p per day when Monzo was still pre–pay (because I’m pretty financially capable) I came round to see the benefit to some people, who struggle so much but are able to visualise 50p (or £15 a month), and therefore budget for it. The drawback of any interest–based cost is that day–to–day it’s virtually impossible to say how much you’re gonna end up paying in seven, or 30 days time.

Whilst not for me as a product (Starling’s offset approach is a great product; I was an original customer of Intelligent Finance which supercharged offsetting), Tom Blomfield’s argument did make perfect sense to me, and this nuanced approach to choice is what the rather sledgehammer approach by the FCA does away with.

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It tries to put everyone on the same level (equity) but actually just makes it all equal (equality) which are quite different.

Its a shame because there was a genuine argument for a “flat fee” charge but now that’s been gone away with, I think those who are in the worst positions will feel it even more.

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The moment the FCA pushed this out there was only going to be one outcome, higher overall costs. Many banks make significant money from overdrafts and unauthorized overdrafts and fees, so if you remove a proportion of that income then it’s going to be made up in other ways.

I think it’s time ‘free’ banking was ended and that should allow banks to reduce their overdraft fees and other related costs. This FCA change is going to hurt the very customers they set out to help.

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I don’t agree with this, overdrafts aren’t supposed to be used they are a last option.

It means you have gone above your means and spent more than you currently have available to use. I actually back fees for this because it encourages the person to think overdraft bad… i must prepare myself so i dont get in that situation again.

Fair enough people can lose their job or something unexpected can come up but the culture needs to change to encourage people to have more in rainy day savings instead of relaying on more borrowing if something bad happens.

I like that monzo are being very stringent on who they allow overdrafts to for this reason.

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I don’t think ‘free’ banking is the problem though - surely it is actually helpful? You’re not stuck with a bank just because of X, Y and Z - challengers are able to come in with the data they are privy to via open banking and go “we can do something here”.

This situation isn’t strictly the banks fault, its the regulator - they saw a legitimate area to help those in need, but haven’t (IMHO) implemented it properly - there is a miscommunication of sorts between the regulator and the bank.

Remember, whether arranged or unarranged, an overdraft is technically a loan which is immediately payable on demand it is the worst of the worst kind of lending (albeit the banks tend to not demand it) but it isn’t what it has grown into (that I blame the banks for with students).

Its a tough position for the FCA and the banks, but I think this is the wrong direction.

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To be fair, the FCA didn’t ever demand cheap, only fair:

“…the FCA’s clampdown [was] announced in June, which the regulator said would “make overdrafts simpler, fairer, and easier to manage”
(Source)

There does often seem to be a large group of people in the forum who routinely equate fairest with cheapest – the introduction of foreign ATM charges is a prime example – and can’t seem to get their head round the fact that they are not the same thing.

Monzo has never set out to the cheapest at absolutely everything, a view often lost to people screaming that 50p a day is ‘unfair’ because they conjure up some hypothetical equivalent APR in the thousands.

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Yes I agree that overdrafts should be a last option but equally I know many who don’t or can’t use it as a last resort option. So if all the banks increase their charges akin to 39% Apr then it’s going to affect those who regularly use their overdraft and often those are the people who cannot afford it.

I didn’t say the FCA were demanding it be cheaper they were trying to remove the daily charges, unauthorized charges etc.

My point was I felt this was only going to result in banks increasing charges.

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