In December, HSBC UK (the Hongkong and Shanghai Banking Company) announced that it will change the way it charges overdraft fees. Beginning next year, the banking giant will charge an interest rate of 39.9 percent of the overdraft amount. 

Though the bank calls this move an effort to make its overdraft fee policies more straightforward for consumers, critics note that this change marks a steep increase of overdraft interest fees, and worry if this move is part of a larger trend towards elevated overdraft fees.

CNBC explains that the 39.9 percent represents an interest charged on the amount borrowed from the UK bank — in other words, the overdraft amount.

Yahoo Finance says that HSBC currently charges customers an interest rate of 9.9 to 19.9 percent, in addition to a daily fee of $5 for every day that an account is in overdraft.

The bank will eliminate the $5 daily fee, to adhere to new requirements set forth by the U.K.’s Financial Conduct Authority. Additionally, the bank will reduce the maximum cost for an un-arranged overdraft from 80 pounds to 20 pounds, and will give customers a buffer for Bank Accounts and Advance accounts, meaning that they can go 25 pounds into overdraft without incurring interest charges.

The bank estimates that 70 percent of HSBC customers who use overdraft services will benefit from the change. However, Yahoo notes that the remaining customers left out of this 70 percent may be hit hard financially, explaining that a review conducted by the FCA noted that 50 percent of the total un-arranged overdraft fees paid in 2016 were paid by just 1.5 percent of banking customers.

The FCA stressed, “we see harm to consumers — particularly to vulnerable consumers — from the disproportionate burden of high charges and the repeat use of overdrafts.” 

In contrast, Yahoo notes that Rachel Springall of Moneyfacts.co.uk that the HSBC’s change to overdraft amount fee structure would likely benefit people who struggle financially and hit their overdraft limit frequently, and would instead negatively impact those who are able to better plan their overdrafts.

HSBC previously faced criticism for how it handled overdraft fees and was ordered by the Competition and Markets Authority to return 8 million pounds that the bank charged to 115,000 customers because the bank allegedly did not send customers the required texts to inform them that their accounts were close to going into overdraft. 

Unfortunately, HSBC’s increase of fees could be part of a larger trend of financial institutions raising overdraft fees, both in the U.K. and in the U.S. A number of financial institutions in the United States under investigation regarding their administration of overdraft charges.

Forbes explains that overdraft fees are a major source of revenue for banks. Reportedly, Moebs Services found that banks made over $34 billion from U.S. overdraft fees in 2017. According to Forbes, that is the most that Americans have paid in overdraft fees since 2009. Individual overdraft fees are also rising, and are now around $30 each, whereas the average overdraft fee was $20 in 2000.

If you were charged overdraft fees or NSF fees by your bank or credit union that you believe are improper for any reason, the attorneys who work with Top Class Actions are ready to investigate these fees on your behalf.

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This article is not legal advice. It is presented
for informational purposes only.