Bank becomes first to ditch overdraft fees
Unity Trust has become the first bank to ditch overdraft charges levied on people who stray into the red without permission.
The bank, which serves trade unions, charities and voluntary bodies rather than the general public, says it has taken the step to help those experiencing financial difficulties. Although customers that persistently go overdrawn may see their accounts closed by Unity Trust, they will not be hit with any penalties or fees.
Kevin Turmore, managing director of Unity, says: “At this time of severe contraction in the banking industry we wanted to reiterate to our customers that we are in a very sound financial position. We have done this by announcing a new deal with them that includes the promise that we will not levy penalty charges or high levels of interest for temporary overdrafts which don’t have prior agreement providing they keep in touch with us and let us know if they think they might exceed the financial limits of their account.”
The move, which applies from January 2009, comes as the banking sector awaits the outcome of the long-running test case brought by the Office of Fair Trading. The High Court is still in the midst of deciding whether the OFT has the right to impose limits on the charges banks levy on overdrawn customers.
Although Unity Trust Bank is not involved in the court case, its decision to scrap overdraft charges is not dissimilar to moves made by bigger banks. Both Barclays and HBOS recently simplified the charging structure on their current accounts, in response to calls from consumer groups to make them easier for customers to understand.
An overdraft is an agreement with your bank that authorises you to withdraw more funds from your account than you have deposited in it. Many banks charge for this privilege either as a fixed fee or charge interest on the money overdrawn at a special high rate. Some banks charge a fee and interest. And other banks offer a free overdraft but impose very high charges for exceeding the agreed limit of your overdraft.