Customers refunded £47m in bank overdraft fees

29 May 2020

Competitions watchdog secures millions in refunds


Customers have received over £47 million in refunds from banks that failed to properly warn them about unarranged overdraft charges.

The Competitions and Markets Authority (CMA) has taken action against five of the UK’s biggest banks and building societies for breaching its rules.

The competition watchdog demands current account customers must get a text alert warning of fees before a bank charges them for going into an unarranged overdraft.

Receiving the alert gives customers time to take action and avoid any unexpected charges.

Since the CMA began enforcing the order in 2018 they have secured refunds of over £47 million.

Which banks are affected?

Most recently, RBS failed to send accurate overdraft text warnings to 36,000 customers from February 2018 until December 2019.

It has now fully agreed to repay these charges, as well as providing an additional 8% in interest, bringing the total refund to customers to £2.2 million.

Santander has set aside £17 million to refund customers following six breaches of the rule which affected 470,000 customers.

This is on top of £2 million in refunds by Santander already announced by the CMA in May 2019.

Since 2018 the CMA’s action has led to refunds from the following banks and building societies:

  • £11 million for Metro Bank
  • £8 million for HSBC
  • £7 million for Nationwide

Do I have to do anything to get a refund?

Affected customers will be notified by their bank or building society and refunded automatically.

Andrea Coscelli, chief executive of the CMA, says: “Text alerts have been absolutely key in helping people to avoid unfair unarranged overdraft charges and, where banks have failed to comply, the CMA has worked to secure millions in refunds for customers.”

“While these breaches are disappointing, and may have been preventable had the CMA been able to issue serious financial penalties, our action has put a total of more than £47 million back into people’s pockets."

Watchdog overhauls overdrafts

Lenders make more than £2.4 billion from overdrafts each year, with about 30% of this coming from unarranged overdrafts, an investigation by the Financial Conduct Authority (FCA) revealed.

As a result, the FCA decided to overhaul the overdraft system to make it “simpler, fairer and easier to manage.”

From 6 April this year, banks and building societies are no longer be able to charge higher interest rates on unarranged overdrafts than they do on arranged overdrafts.

They are also be banned from charging additional fixed fees. Instead lenders have had to introduce a simple flat interest rate.

Banks waive overdraft fees temporarily

In early April the FCA ordered that all banks and building societies offer the first £500 of a customers’ overdraft interest-free for three months to help those struggling due to coronavirus.

This measure had to be put in place by 14 April 2020.

Most major banks have applied the interest-free overdraft to their customers automatically.

But some banks including Starling Bank, NatWest, RBS, Virgin Money, Clydesdale Bank and Yorkshire Bank require customers to request the interest-free overdraft before it is applied.

Experts advise that customers try to get on top of their overdrafts to avoid being caught out when fees are brought back in.

Salman Haqqi, personal finance expert at says: “For those who have seen their overdraft fees pause in line with the bank's COVID-19 response, now is the time to check their accounts and ensure they will not fall into a fee trap.

Free overdrafts will not be sticking around for long and consumers could face difficulties when fees are re-introduced.”

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