Banks Slash Overdrafts in Crackdown on Credit
Byline: Rosanna Spero
BANKS are using regular overdraft reviews to slash the amount customers can borrow, often giving them less than a month to pay back the money they owe.
Lloyds TSB, Halifax and Nationwide are among those who have stripped down customers' overdrafts with minimal notice.
An overdraft is technically a loan repayable on demand.
The British Bankers' Association (BBA) says there is no legal requirement for a lender to give notice and nothing guiding their conduct in the Banking Code.
Simon Dornan received a letter from Nationwide giving him 26 days to reduce his overdraft from [pounds sterling]7,000 to [pounds sterling]2,000.
If he did not do so, the building society said it would charge an unauthorised overdraft fee of [pounds sterling]20 per month and interest at 24.9 pc equivalent annual rate (EAR).
Simon, 45, from London, says: 'I was very surprised to get the letter, as I had never gone over the limit. I recently bought a house and have used every penny I had and the overdraft to renovate it.
'If they had looked properly at the account, they would have seen the money went to the same building firm.
I had two Isas and an e-Savings account with them I'd also cleared out to fund the work. The annoying thing was that I had just got into a position to start paying down the overdraft and saving again.' When Simon called Nationwide, it said he could repay the loan at a rate of [pounds sterling]500 a month. But if he missed one payment or went over by a penny he would have to repay the full amount plus interest.
'I was so disgusted by their treatment that I took out an interest-free Virgin credit card and transferred the debt onto this,' he says. 'I then closed all my accounts and the children's savings accounts, and we are now customers of First Direct.'
A Nationwide spokesman says: 'Mr Dornan's account was reviewed as part of a wider Nationwide policy to review customers' FlexAccounts every six months. The overdraft limit was reduced because the credit score did not reach the required level to enable us to renew the facility. …