A landmark court ruling last week is set to "open the payout floodgates". Or so says the Daily Mail.
The gist of the story is simple: Oliver Foster-Burnell went over his overdraft limit. As a result, he was charged more than £700 in charges and penalties. He wasn't able to pay those charges. The result was a "spiral of debt that crippled his finances".
The court has ordered his bank to pay him back the £743 plus interest, and Mr Foster-Burnell has made a statement to the effect that "it is unfair the banking industry is allowed to profit while people suffer financial hardship. By applying these charges, and allowing them to snowball out of control, it skews the imbalance."
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Fair enough. But here's the real question: why does anyone have an unauthorised overdraft anyway?
The key surely is in the name unauthorised. If a bank hasn't authorised a loan to someone, why would they pay it out? After all, it isn't consumers who hold the cards here, it is the banks. They don't have to pay out beyond a previously agreed overdraft limit if they do, it is their choice. You could argue that if they make the choice to pay out, they effectively authorise any resulting increase in the overdraft.
So, rather than creating this rather bonkers and, to my mind, utterly artificial division between what is and isn't authorised, it would surely be better to refuse payments beyond an agreed limit, and instead send an instant text to the account holder saying something along the lines of "We have had a request for a payment that would take your overdraft beyond the agreed limit. If the payment is urgent please contact us immediately to discuss your options."
No more overdrafts classified as unauthorised would mean no super-high charges, no more of the situations that caused the nightmare for Foster-Burnell, and no more crappy PR (on this subject at least) for the big banks.
This seems so obvious to me that I can't understand why it isn't obvious to the banks. Unless, of course, they consider a reputation for untrustworthiness, regular hostile court judgements, and the enduring hatred of a subsector of their customers to be a price worth paying for the maintenance of short-term outsized profits.
-
Barclays warns of significant rise in social media investment scamsInvestment scam victims are losing an average £14k, with 61% of those falling for one over social media. Here's how to spot one and keep your money safe
-
Over a thousand savings accounts now offer inflation-busting rates – how long will they stick around?The rate of UK inflation slowed again in March, boosting the opportunity for savers to earn real returns on cash in the bank. But you will need to act fast to secure the best deals.
-
Our pension system, little-changed since Roman times, needs updatingOpinion The Romans introduced pensions, and we still have a similar system now. But there is one vital difference between Roman times and now that means the system needs updating, says Merryn Somerset Webb.
-
We’re doing well on pensions – but we still need to do betterOpinion Pensions auto-enrolment has vastly increased the number of people in the UK with retirement savings. But we’re still not engaged enough, says Merryn Somerset Webb.
-
Older people may own their own home, but the young have better pensionsOpinion UK house prices mean owning a home remains a pipe dream for many young people, but they should have a comfortable retirement, says Merryn Somerset Webb.
-
How to avoid a miserable retirementOpinion The trouble with the UK’s private pension system, says Merryn Somerset Webb, is that it leaves most of us at the mercy of the markets. And the outlook for the markets is miserable.
-
Young investors could bet on NFTs over traditional investmentsOpinion The first batch of child trust funds and Junior Isas are maturing. But young investors could be tempted to bet their proceeds on digital baubles such as NFTs rather than rolling their money over into traditional investments
-
Negative interest rates and the end of free bank accountsOpinion Negative interest rates are likely to mean the introduction of fees for current accounts and other banking products. But that might make the UK banking system slightly less awful, says Merryn Somerset Webb.
-
Pandemics, politicians and gold-plated pensionsAdvice As more and more people lose their jobs to the pandemic and the lockdowns imposed to deal with it, there’s one bunch of people who won’t have to worry about their future: politicians, with their generous defined-benefits pensions.
-
How the stamp duty holiday is pushing up house pricesOpinion Stamp duty is an awful tax and should be replaced by something better. But its temporary removal is driving up house prices, says Merryn Somerset Webb.
