Metro Bank refunding customers for overdraft alert failings

22 April 2020   By Dr Lucy Brown, Editor

Challenger bank commits to refunding customers who weren't warned they would be charged for unarranged overdrafts.

Almost 130,000 Metro Bank customers were affected by the issue which has been going on since new rules came into force in February 2018.

£10.5m will be refunded in fees to affected customers, with interest of 8% also added to the charges. The refunds are expected to be around £11.4m in total.

Metro isn't the first bank to fall foul of these rules with HSBC, Santander and Nationwide all breaching the regulations in the last year.

metro bank

Text alert failures

Since February 2018, banks must send a text message to customers warning them when they're about to enter an unarranged overdraft. This message must also include a reminder there will be fees associated with this unarranged overdraft.

An investigation by the Competition and Market Authority (CMA) found that nearly 130,000 customers were sent messages that warned customers they were about to enter an unarranged overdraft but did not inform them they would be charged for doing so. In addition, some of these messages were sent later than they should have been.

The CMA noted that Metro Bank has been breaching the text message alert rules for some of their customers since the regulations were introduced in February 2018.

The bank agreed to fully refund the affected customers £10.5m in fees that were charged when clear warning wasn't given. Along with this, they have committed to adding 8% interest to refunds, so customers are compensated for the problems.

In addition, Metro will consider any reasonable requests to compensate customers for extra costs incurred due to the failure, i.e. fees from other providers as a result of no money being transferred into the account.

Ongoing issue

Metro Bank may be the latest casualty of these overdraft alert rules, but they are certainly not the first to breach them.

Nationwide has been rebuked twice, first refunding £6m to over 320,000 customers in August 2019 and then a further £900,000 in February 2020.

In December 2019, it was confirmed that both HSBC and Santander had breached the rules and would be paying compensation to customers.

While compensating customers is welcome, the CMA does not have the power to fine banks for breaching the rules and have requested such powers from the Government in the past.

Enforcement of these regulations passed from the CMA to the Financial Conduct Authority (FCA) in December 2019, so future investigations will be undertaken by them.

Overdraft charges

Overdraft charges have been in the spotlight in recent months, with the deadline for introducing easier overdrafts meant to be this month (April).

However, due to the coronavirus outbreak several major banking groups have put the changes on hold to avoid plunging customers further into financial crisis.

This is despite repeatedly telling customers the majority will be better off under the new rates, an assessment backed up by FCA research.

In January, they said seven out of ten customers who use their overdrafts would see no change or be better off due to the reforms, although they did subsequently request information from banks to understand how their new rates had been set.

With all this in mind, we can expect to hear plenty about overdrafts in the next year as the impact of the reforms is finally felt by customers. The coronavirus outbreak will delay this, but there will be some analysis of how customers are being affected further down the line.

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