Spiralling overdraft charges adding millions to problem debt

12 Oct, 2016

New figures from StepChange Debt Charity, released today, suggest that almost two thirds of people seeking its help with overdraft debts have regularly exceeded their limit and faced charges of £45 each time on average.

Every month, between 6,000 and 10,000 people contacting the charity will have incurred unarranged overdraft fees. In the year before they sought debt advice, the charity estimates that they will have been hit with over £1.3 million in fees between them.

The new figures also show that people with overdrafts had gone into the red in almost every month during the last year. The charity believes that too many people in financial difficulty are being trapped in an overdraft cycle and it is calling on the FCA to take strong action to both cap charges and reduce the role of overdrafts in persistent problem debt.

Regular overdraft use rife among people in problem debt

The charity’s new survey of 1,019 clients with overdrafts revealed that on average, they went overdrawn in 11 of the last 12 months. Recent national research from StepChange Debt Charity has shown that around 1.7 million people are trapped in an overdraft cycle, consistently using overdrafts to meet essential and emergency costs. This makes them significantly more likely to fall into financial difficulty.

More than half of the people advised by StepChange Debt Charity in the first half of 2016 had overdrafts. This amounts to 93,000 people struggling with overdraft debt and they owed an average of £1,679 on their overdrafts, in addition to their other debts.

People in financial difficulty paying millions a year in charges

Many of those trapped in a cycle of using their overdraft regularly had exceeded their overdraft limit. Nearly two thirds (62%) of survey respondents had gone over their limit in the last year and did so in an average of five of the past 12 months. 39% of respondents revealed that they faced average charges of £45 each time for using an unarranged overdraft, adding around £225 a year to their already heavy debt burden.

Each month, the charity is contacted by around 15,500 people with overdraft debt. Based on the survey results, the charity estimates that approximately 9,600 go into an unarranged overdraft, doing so in an average of five of the 12 months before they seek debt advice. Around 6,000 would pay an average of £45 per charge, a total of £225 for the year. The charity therefore estimates that those seeking advice on overdraft debt in any given month will have paid at least £1.35 million in unarranged overdraft fees between them over the last year.