UK challenger aims to simplify overdrafts

By David Beach | 25 January 2019

A spokesperson for challenger bank N26 believes that “traditional banks have historically charged hidden fees and higher rates”, unfairly affecting customers who may have “unknowingly or accidentally used the overdraft function”.

In December, Financial Conduct Authority (FCA) chief executive Andre Bailey announced proposals “'to make the biggest intervention in the overdraft market for a generation” in the regulator’s high-cost credit review.

According to the review, overdrafts have long been a “dysfunctional market” with banks making £2.4bn from overdrafts in 2017, 30% of which came from unarranged overdrafts, a credit function which is charged daily or accumulatively.

The N26 spokesperson said the bank’s services are “transparent and controllable” for its customers, and that challengers do not rely on the types of banking practices the FCA is trying to quash.

“These recommendations are in line with our own practice,” said the spokesperson. “The nature of challenger banks means that we can innovate and respond to customer needs at a speed that traditional banks simply cannot.

“Increased competition will mean that knowing your customer and building the right products for them will become even more important. Customer insight and innovative design are the foundation of N26.”

Lloyds Bank came under criticism earlier this month as Rachel Reeves, chair of the Business, Energy and Industrial Strategy select committee, took to Twitter to question the bank’s plans that would see its overdraft charges equate to 61% in some cases. “[B]anks are getting away with ripping their customers off with exorbitant unarranged overdraft fees,” said the Labour MP.

When contacted to clarify its plans, a spokesperson for Lloyds Bank said: “We welcome the FCA’s move to simplify the structure of overdrafts and the cost of unarranged overdrafts - our recent changes to planned overdrafts were announced prior to the FCA’s latest recommendations.

“We were the first major bank to remove charges for unarranged overdrafts and returned item fees and our overdraft charges are proportionate to what is actually borrowed, making it easier for customers to understand the total costs involved.”

Other elements of the FCA’s proposals include banning fixed fees for borrowing through an overdraft; mandating that arranged overdraft prices are advertised in a standard, customer friendly and comparable way; forcing banks to do more to identify customers under financial strain and helping them to reduce their overdraft use.

N26 has plans to introduce overdrafts for its UK customers soon but the bank claims they will offer a single interest rate.

“On the small occasion customers end up in unarranged overdrafts, either accidentally or purposefully, N26 charges no penalty fees and the same interest rate as our arranged overdraft (14.9%),” said the N26 spokesperson.

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