Problem overdraft? How to ask your bank for a refund of interest

Have you had big overdraft problems for a long period?

You can make an affordability complaint and ask for a refund of overdraft charges if:

• your overdraft limit was set too high at the start or increased to a level you are unable to clear; or
• your overdraft usage showed you were in long-term financial distress. For example, being in the overdraft all the time, or using an unauthorised overdraft a lot
• your overdraft was originally a student account with no charges, but now interest is being added and you are in the account all or almost all of every month.

This article shows how to make an affordability complaint to your bank, with a free template letter to use.

These complaints do not hurt your credit record. And if the bank doesn’t make a you a good offer, it is free to take your case to the Ombudsman.

Overdraft affordability complaints

Overdrafts are supposed to be for short-term borrowing

Overdrafts are intended to be used for short-term problems, not as long-term borrowing. A bank should review a customer’s repayment record and overdraft limit and if there are signs of financial difficulty, offer help.

One sign of financial difficulty is hardcore borrowing for a long period. The Lending Code defined hardcore borrowings as “the position where a customer’s current account overdraft remains persistently overdrawn for more than a month without returning to credit during that period”. 

Some Ombudsman decisions

All cases are very individual.  But these examples give you an indication of what the Ombudsman thinks is important.

In this NatWest decision, the Ombudsman decided:

NatWest did have an obligation to monitor Miss K’s use of her overdraft facility.

Any fair and reasonable monitoring of Miss K’s overdraft facility would have resulted in NatWest being aware Miss K was in financial difficulty … by October 2014 at the absolute latest. So NatWest ought to have exercised forbearance from this point onwards.

In this Santander case, the bank didn’t notice hardcore borrowing:

By this point, Miss C was hardcore borrowing. In other, words she hadn’t seen or maintained a credit balance for an extended period of time. Santander’s own literature suggests that overdrafts are for unforeseen emergency borrowing not prolonged day-to-day expenditure. So I think that Miss C’s overdraft usage should have prompted Santander to have realised that Miss C wasn’t using her overdraft as intended and shouldn’t have continued offering it on the same terms.

A similar decision was reached in this Lloyds case:

Mr and Mrs C’s statements leading up to the  renewal shows they hadn’t really had a credit balance on their account for a prolonged period. Indeed, they’d had regular returned payments and had also exceeded their limit. In these circumstances, it ought to have been apparent Mr and Mrs C were unlikely to be able to repay what they owed within a reasonable period with overdraft interest, fees and associated charges continuously being added.

Decide which reasons apply to your overdraft complaint

You are in the overdraft all or almost of the month for a long while

This is the most common reason for winning a complaint

Overdrafts are meant to be used when you have a problem. Using the overdraft a lot for a few months is fine. Or for a few days at the end of a month before you are paid.

Banks should review your overdraft annually. This is in most overdraft terms and conditions. And even if it isn’t, the Ombudsman says this is good industry practice.

So at one of these reviews, your bank should have seen if you were in difficulty with the overdraft. For example if you are in the overdraft for all (or almost all) of the month for a prolonged period. Or if you were often exceeding your arranged overdraft limit.

I would say over a year is prolonged.

The bank set your limit too high

This may have been from the start when you were first given an overdraft.  Or the initial low limit may have been fine, then the bank increased it to a level which it was impossible for you to repay.

If the bank saw signs of financial difficulty, it should not have increased your credit limit, even if you asked for it. And it should have considered offering your help instead (the regulator’s word is forbearance), for example by stopping charges.

But what is too high?

This depends on your income and expenses. An overdraft of £2,000 for someone whose income is £1,800 a month is a lot –  but if you earn £5,000 a month, then a £2,000 overdraft may be reasonable.

Other points that help a complaint

You won’t win an affordability complaint by saying the charges were too high.

Instead, you say the bank should have known they were unaffordable for you because of all the financial problems it could see on your statements and your credit record.

Here is a checklist, do any apply to you?

• often having direct debits or standing orders not being paid;
• a lot of gambling showing on your statements;
• significantly increasing other debts with the same bank (you may also be able to complain about those loans or credit card);
• being recently rejected for a loan or a credit card by the bank;
• significantly increasing debts with other lenders showing on your credit record;
• a worsening credit record – maxed out credit cards, new missed payments, payment arrangements, defaults etc;
• using payday loans;
• mortgage arrears;
• a reduction in the income going into your account.

Making your complaint

What you need at the start

You don’t need to know the dates your limit was increased before complaining, my template asks for them.

If you have paper statements or you can download them from the app, that may be useful for you. But you don’t need to send these statements to the bank with your complaint – the bank already has them!

You can’t go back and see exactly what your credit score was in say 2021 when the bank increased your limit. But your current credit record shows what was happening back six years, so download your credit report now and keep it. The sooner you get the report, the further back it goes. I suggest you get your free TransUnion statutory credit report.

Send a complaint by email

I don’t recommend phoning to start off a complaint. It’s too complicated and you will be talking to someone that doesn’t specialise in these complaints.

I think email is the simplest way to make these complaints. Here is my list of bank email addresses for complaints.

An alternative is to send a long message in the app. But if this means using a chat facility, it’s not usually a good idea, as you are again talking to someone who doesn’t understand what you are saying and tries to tell you what help is available with your overdraft – when all you want is to have your complaint considered.

A template you can adapt

The section above looked at the reasons to complain and the other good points that apply to your case – you can turn those into a complaint.

In the template below, I’ve invented some examples and dates so you can see how a complaint email could read. The bits in italics should be changed or deleted to tell your story.

The bit about other points is important – what should your bank have noticed that showed you were in difficulty?

Points to note

Student overdrafts

You won’t win a complaint about a student overdraft saying you were a student and it was unaffordable at that point.

But when the bank has started charging interest, it should start doing reviews and check if you are in difficulty. So from then on, you can win affordability complaints.

You can complain if the account is still being used or if it is closed

These complaints can be made in a lot of different situations. For example:

• you are still using the account or you have stopped using it and are paying it off;
• the account has been closed;
• the bank defaulted it and sold it to a debt collector (here you still complain to the bank, not the debt collector).  If the debt collector has gone to court and got a CCJ, add a sentence to the template saying you want the CCJ removed as part of the settlement of your complaint.

But if you have had an IVA or bankruptcy after these problems, or if you are still in a DRO, then you shouldn’t complain – ask in the comments below for details.

Old accounts

Banks may say FOS won’t look at an old complaint, but this isn’t right. FOS will often look at a complaint if it has been open in the last six years. How far back FOS will go seems rather random, but it should be possible to go back at least 6 years.

Open and recently closed accounts aren’t a problem – the bank will still have your statements.

If your complaint is about an account that was closed more than 6 years ago, it’s going to be very hard to win.

Packaged bank accounts

These affordability complaints are not about the fees on packaged bank accounts. MSE has a page about packaged bank account charge complaints.

Personal accounts, not business accounts

The complaints covered here relate to personal accounts. For business accounts, talk to Business Debtline about your options.

The Bank replies

They want to phone me!

People are often scared if they get this message. But it may be good news! You can just ignore it or say you would like a reply in writing.

If you decide to take the call, it helps to be prepared:

• have a pen and paper handy so you can write down anything
• if they say they are partially upholding the complaint, ask them the date they are refunding the fees from, and how much. And say you would like to see this in writing before you decide whether to accept it.
• if they ask you questions that sound complicated or worrying, ask them to put the questions in writing as you find the phone difficult
• when they say they are rejecting the complaint, ask for this in writing, as you will be going to the Ombudsman.

Rejection/poor offer – go to the Ombudsman , it’s free

Banks reject many good complaints, hoping you will give up. So don’t! You know if the overdraft has caused you a lot of problems.

You can’t go straight to the Financial Ombudsman (FOS), you have to wait for the bank to reply, or for them to have not replied within 8 weeks.

Here are some things banks may say to try to put you off:

• you could have declined the increase to your overdraft limit – FOS probably won’t think that is a good reason
• you never let the bank know you were in difficulty – FOS probably won’t think that is a good reason
• your salary was enough to return you to credit each month – this is misleading if bills meant you very soon went into the overdraft;
• FOS will not look into things that happened more than 6 years ago – if your account was still open in the last 6 years FOS may well look at it.

And the bank may offer to refund fees for the last 15 months say, even though your problems have been large for many years. Think twice about accepting a low offer – you won’t put this offer at risk by going to the Ombudsman.

If you are offered a refund for the last 6 years but not any further back, have a think if this is a good enough offer. It is a bit unpredictable whether the ombudsman will be prepared to go back further than 6 years.

If you aren’t sure, post in the comments below.

To send the case to FOS, complete this online form:

• you can use what you put in your complaint to the bank;
• if the bank rejected your complaint or made a low offer, say why you think this is unfair;
• use normal English, not legal terms.

You don’t need to send your bank statements – the bank will send those to FOS. And you don’t need the policy documents for your bank account, the lender will supply those to FOS if they are needed.

Do these complaints work?

Yes! From 2024, some banks are making more offers directly.

A Guardian article featured a case where someone used the template letter here. Barclays denied it had done anything but made an £8,000 “goodwill” payment to the customer.

And if your bank rejects your case, people are winning cases at the ombudsman. FOS is a friendly service although it isn’t speedy. It isn’t faster to use a solicitor or a claims firm,

The comments below this article are from other people who have made this sort of complaint. That is a good place to ask for help if you aren’t sure what to do.

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