‘We’re just an accident of nothing’: How Monzo and HSBC’s new overdraft fees could hurt UK families | The independent
NHS midwife Jennifer Stephenson, 32, and her husband, 35, first learned that their bank, Nationwide, was about to start up make them pay 39.9% interest on their overdraft when they received a newsletter from a third-party money-saving service in July of this year. The Preston couple, who have three school-aged children, both work full time but are still short of around £ 200-300 a month and rely on their overdraft to pay for everything from weekly grocery stores to bills fuel, school shoes and Christmas. present.
Fortunately, the Nationwide changes didn’t take effect until October, so they quickly moved all of their main accounts to the Bank of Scotland, where they were able to continue using the safety net. When unforeseen expenses arise – a broken washing machine or a school trip – they can continue to dip into their overdraft. “We’re always catching up,” says Jennifer The independent. “I consider myself lucky, but I know we are just an accident or a broken down car far from having nothing.”
Monzo became the last bank announce it will charge an overdraft fee of up to 39% from April of next year. Early December HSBC announced it would follow Nationwide and also penalize clients with an interest rate of 39.9% on their overdraft from March 2020 – as much as quadruple the interest currently paid. The financial arm of Marks & Spencer, M&S Bank, has also confirmed they would adopt the same rate. Banks say this is in response to new industry rules set by the Financial Conduct Authority (FCA) to simplify overdraft fees and will improve 70 percent of overdraft users. But for clients like Jennifer, it’s a little comfort.
“If all the banks start adopting similar policies, I think we will have a hard time clearing the overdraft and staying away from it. It’s getting worse and worse every year, [we] never seem to erase it and stay out for more than a few weeks, ”she says.
The family would not consider payday loans, but would admit that not being able to use their overdraft without paying additional fees would mean borrowing from friends or family or increasing spending on credit cards. “We would have a hard time coping, we would probably spend more on credit cards than we would be unable to pay off at the end of each month resulting in a buildup of debt,” she adds.
Financial Advisor Sam jennings says Jennifer’s story is not unique: “Rising overdraft interest rates will undoubtedly cause huge financial problems for many people. In my opinion, this is outrageous because it basically means that for the person who frequently uses their overdraft for daily living purposes, their actual disposable income will decrease.
“It will have a huge negative impact on people’s personal finances because they will take on more debt, which will make their exit much more difficult. “
According to Debt Service Provider Money Advice Service, one in six people in the UK are now financially over-indebted, which equates to around 8.2 million adults using overdrafts, credit cards or payday loans, to get there at the end of the month.
Historically, men in England and Wales were more likely to owe money to the bank, but since 2014 women are more likely, according to the Report of the Women’s Budget Group as of October 2019. Women are also more likely to take on debt to pay for daily necessities. Debt advisory service StepChange says 61% of those who go into debt to buy basic necessities are women.
Faye Goldman, Director of gingerbread, a charity for single-parent families, says: “The numbers show that a disproportionate number of women are relying on their overdrafts. With 90 percent of single parents being women, and many already struggling to make ends meet, single-parent families will be hit hard by overdraft interest rates, like the large increases announced today.
“We often hear about single parents who constantly struggle with their bills – only 50% can keep their homes warm in the winter without making cuts. “
Laura, 42, whose name has been changed to protect her anonymity, is a single mother from Sheffield with a seven-year-old daughter, who suffers from cerebral palsy, autism and severe learning disabilities. Laura is a full-time caregiver and regularly relies on her overdraft to make ends meet. At the moment, her overdraft is £ 700 (the limit is £ 1,000) and is worried about what the overdraft fee will mean to her.
“I rely on my overdraft every day of the week, I am literally overdraft all the time. I had to give up work so these charges are so stressful to know about. The banks take advantage of my vulnerability, ”she said. Laura has not yet decided whether she will stay at HSBC or risk moving so that the same changes are made at other banks afterwards. “It’s hard to know where to go,” she says.
A recent Young Women’s Trust study, a charity that supports young women between the ages of 18 and 30, especially those struggling to live on little or no pay, found that more than 50 percent of female caregivers say they struggle month-to-month and a third say they are in debt “all the time”. A third says they are “filled with terror” when they think about household finances.
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Ash Corbett-Collins, 28, of Birmingham, who has been doing business with HSBC since the age of 11, said he had already decided he couldn’t afford to change banks even though he knew that he would be affected by the new overdraft fees. Ash, who has an overdraft limit of £ 1,750, says he’s trapped with the bank because he won’t get the same level of loan elsewhere and he’s confident others will raise all their fees in due course in any event.
“From university [he graduated in 2012] I used my overdraft each month to cover bills. It’s everything from housing tax to utilities, credit card, food and rent, ”he explains. “I slipped into my overdraft at university and now, after spending my money, I don’t have enough left to refuel. Once you become dependent on your overdraft, it can be difficult to break out of this cycle, even being financially prudent.
James Yelland from Charity of money, who runs financial wellness workshops in London, says he’s more optimistic about what industry-wide changes will mean and hopes he will start a conversation about the issues of so many people who rely on their discovered. He explains, “We often come across people who use their overdrafts frequently and, managed carefully as a short-term solution, it can be manageable. However, many rely on their own and fail to perceive the fact that an overdraft is interest-bearing debt.
“While the higher interest rates from HSBC and others are surprising and attracting attention, they are a response to tough new FCA rules designed to correct a highly dysfunctional and unfair overdraft market. Under the new rules, even at a high rate of 40%, an overdraft should only earn pennies of interest on a daily basis for a user.
But others are still not convinced. Jennings says, “This increase isn’t really going to help anyone other than the banks, because there doesn’t seem to be any consumer benefit here.”
Jennifer says she and her family will continue to be vigilant in monitoring other banks, but concerns will weigh on her. “It’s really worrying, you know. With this discovery, there is a safety net. We have a roof over our heads and the children are fed and warm, but the financial institutions that add to the debt pressure with sky-high interest rates on overdrafts will never solve the problem.
Dan Wass, Nationwide Director of Banking and Insurance, said The independent: “We always strive to make our products as simple and transparent as possible, backed by services that help our members stay in control.
“In the further context of FCA’s overdraft review, we are confident that the removal of unplanned borrowing charges, the introduction of a single interest rate and the expansion of our alert series existing system will set a new standard in simplicity, transparency and control to meet the daily borrowing needs of our members.
An HSBC spokesperson said: “We are introducing a £ 25 stamp on the following accounts: HSBC advance, bank account, checking account, so customers will only pay interest on the amount borrowed on the interest-free stamp .We will contact customers in the new year to support [those] with heavy overdraft users. “
If you’re having trouble financially, Citizen’s Advice offers free, unbiased debt and money management advice. Visit his website