Friday 27 April 2018

Probe into sky-high charges on overdrafts

Charlie Weston Personal Finance Editor

THE high cost for consumers of going into the red on their current accounts will be investigated by the Central Bank.

Permanent TSB is the worst offender, charging customers 28pc if they end up in an "unauthorised" overdraft situation.

But AIB, Bank of Ireland, National Irish Bank (NIB) and Ulster Bank also impose high interest rates and surcharges on those who end up overdrawn on their accounts.

Regulators are concerned that more and more people are going into the red on their current accounts because they are cash-strapped and have few other sources of credit.

And consumers are also finding themselves with unauthorised overdrafts because banks are taking a tougher line on the operation of current accounts.

An overdraft is a loan you arrange through your current account. It allows you to spend more money than you have in your current account up to an agreed limit, known as the 'overdraft limit'.

The interest rates for an agreed, or authorised, overdraft vary from 10.62pc charged by NIB to 16.3pc charged by Permanent TSB.

But if you have not got an agreed overdraft, or if you exceed the overdraft limit, then surcharges kick in. These are charged in addition to the overdraft interest rate.

Surcharges vary from 12pc imposed by AIB and Permanent TSB, to Bank of Ireland's 7.2pc.

The imposition of a surcharge on top of the overdraft rate means the overall cost for an unauthorised overdraft is higher than the interest charged on credit cards.

Unauthorised overdrafts cost 28.3pc at Permanent TSB, 24.2pc at AIB and 23.55pc at Ulster Bank. Bank of Ireland charges 22pc, while NIB's Easy Customer has an overall charge of 20.43pc, with 19.6pc charged at Easy Plus, according to data from the National Consumer Agency.

The Central Bank's assistant director general, Bernard Sheridan, who is responsible for consumer protection, said there was concern consumers could be vulnerable to sky-high overdraft charges.

Credit

"We would have concerns that because some consumers in the current environment may be relying more on overdrafts as a form of credit, they will be incurring additional charges which can be very expensive in the longer term.

"We want to make sure that they are not being charged more than what is allowed."

Permanent TSB said in May it was going to refuse to honour cheques or direct debits if customers did not have enough money in their accounts.

Up to then, the bank paid over the money when a cheque bounced and sought to recover the money later.

But now it is adopting a zero-tolerance policy with its 200,000 customers.

It will now no longer allow people who run short of cash to build up an unauthorised overdraft, even if it is temporary.

Earlier this year, Bank of Ireland made it very difficult for its 1.2 million current account holders to avoid fees and charges. As of February 21, customers who do not have a minimum balance of €3,000 per quarter (or €1,000 a month) in their account will be hit with new fees.

And customers have to make at least nine payments every quarter through their current accounts. Not counted in the nine payments are direct debits and standing orders.

Meanwhile, AIB has stopped paying interest to customers on current accounts.

Irish Independent

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