Banks may begin to recall overdrafts

TUESDAY, SEPTEMBER 19, 2006

A high street bank has raised concerns over its customers using overdrafts as long-term loans. HSBC will now require its account holders to re-negotiate their overdraft on a yearly basis, giving the bank the opportunity to increase charges at the same time.

There are 4.5 million UK customers affected at just this one high street bank and if others follow suit, there may be millions more across the country faced with an unexpected financial review. The decision comes in advance of a report from the Office of Fair Trading, which will make conclusions on an investigation into penalty charges on overdrafts and mortgages.

HSBC has said that by introducing a yearly review, it will be able to spot those in financial difficulty much earlier. Its customers already hold lower than average overdraft limits, at an average of £900 compared to the industry average of between £1,200 and £1,750. Stuart Glendinning, managing director at moneysupermarket.com, has said that he believes the move by HSBC is to protect itself from "exposure to bad debt".

"Personally I don't think a bank should be criticised for reducing its exposure to bad debt and neither do I think it inappropriate to point out that customers shouldn't view the overdraft as a salary extension," he said. "Although some customers might find it uncomfortable having access to an overdraft denied it, arguably, is still in the consumers' best long term interests." Many people find that a debt consolidation loan is a good way of managing their finances when debts are called in by lenders.