A woman who was struggling with debt has received an £8,000 payout from a high street bank after making a complaint about her overdraft. Now thousands of other borrowers could be in line for refunds.
Laura (she did not wish to give her surname) was £30,000 in debt, with £9,000 of that in overdrafts, and struggling to make ends meet when she searched online for a solution.
The 30-year-old had been living on her overdraft for a decade, and other debts – including credit cards and high-cost loans – had spiralled during a financially abusive relationship in her 20s.
After that ended a few years ago, she was left with the mountain of debt and, despite a successful career as a fashion merchandiser, she was barely able to meet her minimum payments each month, leaving her at “rock bottom”.
She says: “I had struggled with it over the years, keeping it quietly to myself.
“Last year, when everybody was impacted with the cost of living crisis, interest rates and bills going up, it got to the point where I couldn’t borrow from Peter to pay Paul any more.
“All of my salary was going on debt payments but it wasn’t even reducing it – it was just interest, interest, interest.”
Her search for solutions led her to Debt Camel, a personal finance website run by Sara Williams, where she learned it may be possible to get interest and fees refunded if a bank has given you an overdraft you cannot afford.
Laura, who lives in London, made a complaint to Barclays in January this year and within weeks had been refunded £8,000, covering fees and interest accrued over a six-year period. The bank says this was done “as a gesture of goodwill”.
It is possible to complain about older charges but that involves going to the Financial Ombudsman Service, which can be a longer process, so Laura decided she was happy with the amount offered by Barclays.
Thousands of “hardcore borrowers” could also be owed refunds by their banks after being trapped in unaffordable overdrafts for years.
“Hardcore borrowing” is a banking industry term that means “the position where a customer’s current account overdraft remains persistently overdrawn for more than a month without returning to credit during that period”.
Overdrafts are designed for short-term borrowing but many consumers find themselves constantly in the red, with numbers rising during the cost of living crisis.
Recent StepChange Debt Charity research found that 3 million people were using their overdraft and credit to keep up with household bills and credit commitments or to make it through to payday.
In total, 11% of UK adults, or 5.6 million people, said they had used their overdraft in each of the three months to January 2023, the survey, commissioned by the debt charity and conducted by YouGov, showed.
“It had been a chain around my neck for the best part of 10 years,” Laura says. “When I got that call from Barclays … the weight lifted.”
She adds: “I carried so much shame around with me but I remember sitting on the train on my commute to work the next day and feeling as if I’m not hiding the fact that I’ve got this thousands of pounds of debt, because it’s gone now. I just felt so uplifted and less hard on myself.
“You do carry a lot of shame and worry and anxiety [when you’re in debt], constantly living in a negative grey cloud, and there is only so far you can bury your head in the sand before actually it does get on top of you and you just feel like you can’t live in that place any more.”
Other steps, including speaking to her bank to get interest frozen, and selling her car, have helped reduce her debt from £30,000 to £2,600 since the end of last year, and she anticipates being debt-free by the end of 2023.
Jane Tully, the director of external affairs at the Money Advice Trust, the charity that runs National Debtline, says: “In many cases, incomes simply aren’t keeping up with rising prices, and our advisers at National Debtline are hearing from many people who are using overdrafts and other forms of credit to plug the gaps in their budgets.
“If you are struggling to get out of your overdraft each month, this is often a sign of financial difficulty.”
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Although the rules on overdrafts have changed in recent years, they can be an expensive form of borrowing. Laura says she was paying £200 a month in overdraft fees, making it harder to pay off the original debt.
Peter Tutton, the head of policy at StepChange, says: “Overdrafts can still be an expensive way to borrow money, particularly where consumers become stuck in repeat overdraft debt.
“Since new FCA [Financial Conduct Authority] rules came into force in 2019, banks and building societies have been required to do more to identify customers who are stuck in overdraft debt and offer help.”
Barclays tells us: “We are sorry our customer has had cause to complain. After investigating the charges that had been applied to their accounts, we determined that they were applied correctly, in line with our terms and conditions.
“However, in order to help with the customer’s financial situation, we offered to refund the charges as a gesture of goodwill.”
It added that the bank had “robust processes for verifying a customer’s credit history and affordability when they apply for a consumer credit product”.
How to get fees refunded
Banks have a responsibility to make sure they don’t approve or extend overdrafts for customers in financial difficulty.
Most terms and conditions say lenders should review a customer’s overdraft annually and offer help if needed.
For example, gambling transactions, debts with other lenders or bouncing direct debits or standing orders, could signal that a customer is in financial distress.
Consumers may be able to get interest and charges refunded by making an overdraft affordability complaint if they believe their bank lent to them irresponsibly. Refunds can be worth thousands of pounds, depending on individual circumstances.
The first step is to complain to your bank. The Debt Camel website features a helpful guide on how to do this, as well as a template letter.
The bank has eight weeks to respond. If it rejects your claim or makes a poor offer, you have six months to escalate it to the Financial Ombudsman Service for free, which you can do online.
The ombudsman will decide whether the bank’s decision is correct or whether it should compensate you.