Barclays face down customer fury over new overdraft fees
ANGER has erupted over a new overdraft system from Barclays which will see customers charged a fee per day, rather than a flat interest rate.
The change means an overdraft from the bank could be much more expensive for some consumers. A small overdraft, one amounting to less than £1,000, will cost 75p per day after the charges come into effect on June 16.
Barclays is sending a letter explaining the change to each of the 5 million customers that have a current account with them. The bank says that the new system simplifies overdraft fees, but there has been dissent about that claim from the bank's customers, and consumer commentators.
The online calculator supplied by Barclays shows just how those costs can add up. If a customer were to keep their account overdrawn by less than £1,000 for two weeks, the loan would end up costing £10.50 in total.
Under the current regime, an arranged overdraft costs an Annual Equivalent Rate (AER) of 19.3%. An overdraft of £800 over a two week period would currently cost the customer £5.45.
Customers who take an overdraft of between £1,000 and £2,000 will end up paying £1.50 a day while those taking a large overdraft of more than £2,000, will pay £3 each day for the privilege. There is no monthly or annual cap on the cost of borrowing according to the bank's new terms.
The added expense of the new overdraft system is already angering consumers and some have said they'll be leaving the bank over the introduction of fees.
On Facebook and Twitter, Barclays customers responded to the introduction of daily overdraft fees by highlighting the expense of the new system. Some users even compared Barclays new fees to the loans offered by payday loans firm like Wonga.
Barclays posted a Facebook video of Catherine McGrath, the manager in charge of implementing the new overdraft fees, explaining their decision. But that drew more angry comments.
Customer reaction to the change in overdraft fees is crystallised in a petition registered on Change.org.
Oxford based musician Alex Flynn's petition, addressed to Ashok Waswani a Barclays CEO, reads "stop threatening these crippling overdraft fees from June 2014" had reached more than 6000 signatures on Thursday, April 24.
Barclays: 70% better off
Barclays, which won a vote to raise bonuses for executives at its annual shareholder's meeting on Thursday, April 24, said that it would not make more money under the new overdraft system.
Ms McGrath said that the system will not be a net gain for Barclays as only 30% of customers will end up paying more.
The 70% who will be unaffected or, in fewer cases, slightly better off as a result of the changes are those who don't take an overdraft of more than £15, those that drew past the limits of their overdraft, and those that were charged for several unpaid transactions in a single day.
On the other hand, customers who use their overdraft as a regular pool to help them meet expenses between paychecks are likely to pay much more under the changed system.
The Financial Conduct Authority (FCA) recently reported on the state of overdrafts in Britain. According to the regulator overdrafts tend to be opaque and consumers could not be blamed for difficulty understanding and comparing them.
Barclays says that its new system is easier for customers to understand and easier to model future payments.
Given the importance of comparisons between bank offerings in decision making, it's difficult to see how the new system is more transparent, though it might be more predictable.
Changes at Barclays notwithstanding, the FCA says that overdraft fees have fallen substantially in the last few years with savings to customers hitting £928 million since 2008.
The regulator's advice, which appears to have been taken to heart by many Barclays customers, is to shop around to find the best deal.