COMMENT

IF you’ve never used an overdraft, well congratulations.

If you have, then you’ll know that even a short accidental dip into the red can be costly.

Now spare a thought for the 2.1 million people who spent the whole of 2016 overdrawn.

That’s an expensive place to be. And it’s one where industry regulator the Financial Conduct Authority has decided enough is enough.

To think that people are using overdrafts when they just need to budget better is to misunderstand the problem.

Around 9.3 million people last year ended up turning to credit just to meet their essential living costs – rent, heating, food, council tax, children’s clothes.

They’re not frittering money away on luxuries and their problems are not ones that budgeting can easily solve.

Fairer

Overdrafts are one of the ways that people try to meet their living needs when their underlying problem is lack of money, often caused originally by a drop in their income.

The FCA found that people living in deprived areas are more likely to pay unarranged overdraft charges and refused payment fees, and they pay around twice as much in fees and charges as those in less deprived areas.

The regulator’s findings that over half of unauthorised overdraft fees are paid by 1.5 per cent of customers, that the fees can be ten times higher than those of payday loans, and that banks make 30 per cent of their £2.4 billion annual overdraft revenue from unauthorised overdrafts are damning warning indicators.

Left to its own devices, the banking industry has been slow to improve the market for these customers. All credit to the regulator for stepping in to make the market fairer.