Barclays withdraws its financial safety net as the cost of living crisis deepens | Borrowing & debt

BArclays customers say they are losing a vital financial safety valve during the cost of living crisis after the bank abruptly withdrew their unused overdraft facilities. The bank has written to a number of its current account holders informing them that their overdraft limit will be removed on one month’s notice as they have not used it for 12 months.

Many say they were counting on the provision in case soaring bills push their accounts into the red. Andrew Davey, who has done business with Barclays for over 30 years, was told his £1,400 overdraft was being withdrawn as he had not used it in the past year.

“I asked if they could just reduce it to £400 as I wanted it as a safety cushion in case of account issues, and spent 40 minutes providing all my financial information including my income and a very detailed breakdown of expenses,” he says. .

He adds: “I have just received an SMS to tell me that my request has not been accepted, and that will remove all my overdraft facility. I really don’t understand why they are pushing customers away.

Clare Illingworth Leach has been doing business with Barclays since 1980 and has an overdraft of £150 which she has never used before. “I got a letter saying it would be removed. So did everyone I know who does business with Barclays,” she says. “I sent them a letter, as a guest, their asking not to remove my modest overdraft facility. They ignored me and revoked it without responding. I’m confined to the house [and] on a very small income, and I wanted to keep it as a cushion in case fraudulent transactions depleted my account, which happened twice in five years.

Barclays says it has been reviewing overdrafts since last year to protect customers from unaffordable debt levels. He says: “We review all agreed personal overdraft limits at least once a year, taking into account all the financial information we have on each client.

“Where it suggests that a personal overdraft limit may be too high, we plan to reduce it to a lower limit, taking into account the amount of overdraft that has been used in the last 12 months. If the overdraft does not has not been used at all for a long time, we can remove it.

It adds: “If customers believe they are able to pay their current limit, they will need to provide additional information to confirm their income and expenses, so that we can meet our requirements as a responsible lender.”

Some clients have speculated that the move was to protect Barclays’ own finances, as overdraft facilities, whether used or not, must be funded and presented as debt in the bank’s accounts.

Andrew Hagger, a personal finance expert at the Moneycomms.co.uk website, says he is unaware of other banks doing the same, but he expects the practice to become widespread as the financial crisis sets in.

“Barclays [and other banks] will no doubt have reviewed underwriting and risk strategies as they know some clients are going to face financial hardship as the cost of living crisis rumbles,” he says. “Some customers were granted overdraft limits when the economic situation was much more positive and stable, but now the landscape and their disposable income are very different.”

According to complaints website Resolver, while other banks are also removing overdrafts, Barclays appears to be the biggest offender. “Banks have a responsibility to make sure customers don’t go into debt,” said spokesman Martyn James.

“But given that credit card interest rates are at their highest levels since the 1990s, and other forms of lending are also at their highest rates in decades, the removal or reduction of Overdraft rates seem counterproductive as millions of households struggle to make ends meet.The practice of reducing and eliminating overdraft limits is hardly in the spirit of regulation.

Banks have a regulatory obligation to treat customers fairly, and the financial regulator, the Financial Conduct Authority, said it was monitoring the overdraft situation.

He says: ‘When making changes to available credit, we expect companies to consider their customers’ circumstances, including any vulnerabilities, to communicate clearly and to give people the time and opportunity to challenge and complain if they disagree.

“As the cost of living increases, more consumers may need to tap into the credit market, including overdrafts. Lenders need to treat people fairly as individuals and consider their needs.

Cheaper alternatives to overdrafts

Overdrafts are one of the costliest forms of debt, with the cost of credit on many accounts rising to almost 40%. One of the best rates right now is 15% from Starling Bank, according to financial news site Moneyfacts.

Nationwide’s FlexDirect offers 0% overdraft but only for one year and for those who qualify.

Martin Lewis of MoneySavingExpert advises anyone who wants to pay off what they owe to use their savings to do so, as the interest rates you get on cash in the bank are far lower than the cost of using overdraft.

Another option is to use a 0% interest credit card, but you’ll need to qualify and make sure you pay it off on time.

A balance transfer fee typically applies of around 3%, but this should be checked with providers. Shane Hickey

This article was last modified on August 17, 2022. An earlier version incorrectly suggested that Barclays customers had to pay high interest rates and fees if forced to use an unauthorized overdraft: Barclays customers do not cannot exceed their overdraft limit and there is no charge for attempting to make a purchase that would take a customer over the agreed limit.

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