Alliance & Leicester's New Rip Off Tactics!

[Oystar]

Alliance and Leicester's New Penalty Charges

The Independent Article

In the cover story of today’s Independent (Jan 8th) it states that Alliance & Leicester “recently stopped charging customers an annual percentage for their agreed overdraft, and replaced it with a daily fee of five pounds – equivalent to an APR of many million percent for those who stray a few pounds into the red.” This is factually incorrect. Although the daily fee is structured as stated, the amount of five pounds is out by a factor of ten, meaning the figure of many million percent is also wrong.

 

Alliance & Leicester have reworked their overdraft fees, but they have done so in the following way: They have stopped charging interest as a percentage of the amount you are overdrawn, as stated, but they have replaced it with a “service fee” of fifty pence per day (rather than five pounds) for being within your agreed overdraft. This fee is levied regardless of whether you are one pence or two thousand pounds in the red. There is also a monthly cap of five pounds on these fifty pence charges, making a yearly cap of sixty pounds.

 

It is only if you go into an unauthorised overdraft that you will be charged the figure of five pounds per day found in the article. The article unfortunately confuses the five pound daily unauthorised overdraft fee with the daily fifty pence fee charged for being within your authorised overdraft. This means the figure of many million percent is a long way out.

A & L Prepares for the OFT Case

 

This does not mean that we approve of the new fee structure. Steve Gracey, at the Alliance & Leicester press office claimed, “We were removing the overdraft interest, which people on the street wouldn’t be able to work out and in its place we put a daily fee of 50p – regardless of how much into the authorised overdraft you go. We brought in the changes in after talking to customers. What they want is a system that’s clear and easy to understand.” As the article in The Independent shows, however, the new system still allows plenty of room for confusion. Could there be another reason for the restructuring of their overdraft fees? The Banks vs OFT court case this January for example?

 

We believe that this is in fact an attempt by Alliance & Leicester to reposition themselves and change the terminology that they use in advance of the court case between the OFT and the banks, so that the unauthorised overdraft fee seems like a natural extension of their authorised overdraft fee. They will argue that there are no “penalty charges”, because the authorised and unauthorised fees use the same structure, only one is more expensive than the other. It allows them to charge ten times more for an unauthorised overdraft, but it allows them to talk in terms of service fees, rather than penalty charges. In theory you could be charged 1825 pounds per year for being one penny into your unauthorised overdraft – an APR of 18.25 million percent. That’s extreme and unlikely, but even in the more realistic case of being over the authorised limit by 100 pounds for a day, the charge is equivalent to 1825% APR. Whatever you call it, five pounds per day is still disproportional to the costs incurred by the bank and thus it is in breach of UK contract law.

 

As noted in the Independent, Alliance & Leicester says its new fees are more “clear and transparent”. We would argue that to be genuinely clear and transparent, and to directly address the issue of proportionality, Alliance & Leicester should publish information of exactly how their customers’ payments from overdraft fees are spent and explain in detail how this relates proportionately to the fees they charge their customers.

 

Incentivising Debt

 

Alliance & Leicester’s new overdraft fee system also has the consequence, as noted (albeit slightly inaccurately) by the Independent, that when a person is overdrawn (authorised) by only a few pounds this is equivalent to a very poor APR rate – for example a person that is overdrawn by only three pounds for a day would pay an APR rate of 6083%. Even when a person is overdrawn by 3 pounds for a month, a so activating the monthly cap, the APR rate is still a huge 2000%. However when overdrawn (still authorised) by two thousand pounds for a month, the APR rate drops sharply to just three percent. This makes the account uncompetitive as an ordinary current account with an overdraft, where an overdraft would be used to cover the rent or mortgage for a few days at a time before pay day, but makes it very tempting to use as much of the overdraft as possible. This could be said to encourage borrowing from the current account.

Conclusion

 

The Independent is right to point out that Alliance & Leicester’s restructuring of overdraft fees creates a very uncompetitive rate of interest for those customers trying to stay in the black and only occasionally dropping into their authorised overdraft. However we feel they should also highlight the incentive to increase one’s debt that the system creates. More importantly however, it is a disguised attempt by Alliance & Leicester to reposition themselves to strengthen their case against the OFT by moving away from terminology such as “penalty charges” and towards “service fees”, whilst at the same time failing to address the main issue, that fees must be in proportion to the cost of providing the service. We can only hope that the courts see through these tactics.

 

Oystar - Dan, Kev & Ben

 

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[alfwithhair]

Yes I couldn't agree more, A&L's new service charge structure is nothing more than extortion.

 

My son got stung recently with £105 charges for being £14 over drawn for 11 days under their new term & conditions on current accounts.

 

2 x £25 payment reveiw fees

11 x £5 daily fee = £105

 

Utterly disgussing how they can charge customers these kind of fees and get away with it.

[tom0407]

I've been a customer with Alliance and Leicester for about 3 years now. I even have a mortgage with them. I have a number of accounts and pride myself by the fact I have never gone overdrawn on any of them.... Until now.

 

I received notification of their new fee structure in the post a couple of months ago and was quite shocked at what I read, but as I've always been very careful with my money, though at-least it wouldn't apply to me.

 

I withdrew £2k from one of my current accounts and transfered this money into my Alliance and Leicester savings account as this particular current account gets a pathetic 0.01% interest.

 

Unfortunately I had forgotten a direct debit for a new credit card was about to come out of this account, and this caused this particular account to go overdrawn by about £120.

 

As the Alliance and Leicester online banking hasn't been working reliably lately, I wasn't aware of the situation until the 8th when I finally managed to login. I immediately transfered £300 over to the account to bring my balance back into the black. So I was overdrawn for just one day, however as my account was already overdrawn another direct debit of £25 had already failed and I'd been charged ANOTHER payment review!

 

I've just checked my online banking again and they also want to charge me another £5 fee for being overdrawn, so in summary.

 

Overdrawn for about 12 hours = £55 fees!

 

After calling them now to ask for an explanation, the girl on the phone had a very apologetic tone in her voice and said they might be able to refund one of the £25 charges for me as I've been a good customer. But on reflection I don't think this is good enough.

 

I accept bank charges are a fact of life, but to me this tactic seems extortionate and complete day light robbery! I honestly can't understand how they can possibly get away with this.

 

I will write a letter to Alliance and Leicester and post on every forum I can find about this to raise public awareness of the big AL [problem]!

[kfdh1962]

seems that A&L are following lloyds tactics... LTSB introduced new charging structures in november.... their's work on a sliding scaledepending on the size of the "unplanned overdraft", ranging from £5 per day to£50 per day for a maximum of 10 days in any "billing period".... so they could charge you upto £250 in a month!!!

[alfwithhair]

The sad thing about my sons case was that he only receives incapacity benefit so when his last payment went in to his account is was swiped by these fees, so he had bugger all to live on for a fortnight.

 

Something needs to be done about the ways these banks get away with charging these extortionate fees. I don't even believe his account should have gone over drawn, he has no over draft facility so by allowing it to become over drawn it is a meal ticket for them. But I expect all complaints will fall on deaf ears as always. But we can live in hope.