Overdraft Affordability Complaints
Overdrafts are intended for short-term borrowing to address temporary financial needs, not as a long-term solution. Banks have a responsibility to monitor a customer’s use of an overdraft and, if there are signs of financial difficulty, take appropriate steps to provide assistance.
Recognizing Financial Difficulty
One clear indicator of financial difficulty is persistent, long-term overdraft usage, often referred to as hardcore borrowing. The Lending Code defines hardcore borrowing as:
“A situation where a customer’s current account overdraft remains persistently overdrawn for more than a month without returning to credit during that period.”
Examples of Ombudsman Decisions
Here are some real-life cases where the Financial Ombudsman Service (FOS) addressed overdraft complaints:
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2020 NatWest Decision:
NatWest failed to monitor Miss K’s overdraft effectively. The Ombudsman concluded:“By October 2014 at the latest, it should have been apparent that Miss K was in financial difficulty. NatWest should have exercised forbearance from that point onwards.”
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2021 Santander Case:
Miss C had been hardcore borrowing, using her overdraft for day-to-day expenses rather than emergencies. Santander failed to act despite its own guidelines stating that overdrafts are not intended for prolonged use. -
2021 Lloyds Case:
Mr and Mrs C’s overdraft statements showed no credit balance for a prolonged period. They regularly exceeded their overdraft limit and had returned payments. The Ombudsman ruled Lloyds should have recognized the financial distress and acted accordingly.
Assessing Your Overdraft Complaint
Consider the following reasons when making your complaint:
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The Bank Set Your Limit Too High
- Was your initial overdraft limit unrealistic for your financial situation?
- Did the bank later increase your limit despite signs of financial difficulty?
Banks should not increase limits without thoroughly assessing affordability, even if you requested the increase. Instead, they should have offered forbearance, such as freezing interest or fees.
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The Bank Ignored Signs of Financial Distress
- Overdrafts are designed for occasional, short-term use (e.g., a few days before payday).
- Persistent overdraft use (e.g., being overdrawn most or all of the month for a year or more) is a red flag that should prompt the bank to review your situation and offer support.
Checklist of Financial Difficulty Indicators
Your case may be stronger if any of the following apply:
- Unpaid direct debits or standing orders.
- Gambling transactions on your statements.
- Rapidly increasing debts with the same bank or others.
- Being declined for loans or credit cards.
- Maxed-out credit cards, missed payments, or defaults on your credit record.
- Use of payday loans or growing mortgage arrears.
- Reduced income going into your account.
- Payment arrangements with creditors.
These signs suggest you were overly reliant on the overdraft for everyday expenses and lacked the ability to repay it without hardship.
Steps to Make Your Complaint
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Gather Information:
- You don’t need exact dates for when your overdraft limit was increased, but having access to old statements or downloading your current credit report (e.g., TransUnion) can provide helpful context.
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Submit Your Complaint:
- Use your bank’s secure messaging app or email to submit your complaint. Avoid calling, as the process can be complex, and phone agents may not specialize in overdraft complaints.
- Keep a copy of your complaint for your records.
What to Emphasize in Your Complaint
Your argument should focus on the bank’s failure to recognize financial distress and offer appropriate support. Avoid centering your complaint solely on high charges, as this alone won’t establish unaffordability. Instead, highlight the financial problems visible in your account and credit record that the bank failed to act upon.
