Barclays pulls financial safety net as cost of living crisis bites

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Barclays customers claim they are losing a vital financial safety valve during the cost of living crisis after the bank abruptly withdrew their unused overdraft facilities. The bank has written to a number of its current account holders informing them that their overdraft limit will be removed with a month’s notice because they have not used it for 12 months.

Many say they were counting on the provision in case soaring bills tip their accounts into the red. Andrew Davey, who has banked with Barclays for more than 30 years, was informed that his £1,400 overdraft was being withdrawn as he had not used it in the past year.

“I asked if they could just reduce it to £400 as I wanted it as a safety cushion in case of account issues, and spent 40 minutes providing all my financial information, including my income and a very detailed breakdown of expenditure,” he says.

He adds: “I have just received a text to tell me that my request was not accepted, and it will be removing all my overdraft facility. I really cannot understand why they are pushing customers away.”

Clare Illingworth Leach has banked with Barclays since 1980 and has a £150 overdraft which she has never yet used. “I received a letter stating that it would be removed. So did all the people I know who bank with Barclays,” she says. “I sent them a letter, as invited, asking them not to remove my modest overdraft facility. They ignored me and revoked it without replying. I am housebound [and] on a very small income, and I wanted to retain it as a cushion in case of fraudulent transactions depleting my account, which has happened twice in five years.”

Barclays says it has been reviewing overdrafts since last year to protect customers from unaffordable levels of debt. It says: “We review all personal arranged overdraft limits at least once a year, taking into account all the financial information we have about each customer.

“Where this suggests that a personal arranged overdraft limit may be too high, we will plan to reduce it to a lower limit, taking into account how much of the overdraft has been used over the past 12 months. If the overdraft hasn’t been used at all for a long time, we may remove it.”

‘The practice of slashing and removing overdraft limits is hardly within the spirit of the regulationsMartyn James, Resolver

It adds: “If customers feel they are able to afford their current limit, they will need to provide additional information to confirm their income and expenditure, so we can meet our requirements as a responsible lender.”

Some customers have speculated that the move is to protect Barclays’s own finances, since overdraft facilities, whether used or not, have to be funded and shown as debt on the accounts of the bank.

Andrew Hagger, a personal finance expert at website Moneycomms.co.uk, says he is unaware of other banks doing the same thing, but he expects to see the practice become more widespread as the financial crisis bites.

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“Barclays [and other banks] will undoubtedly have reviewed underwriting and risk strategies, as they know some customers are going to face financial difficulties as the cost of living crisis rumbles on,” he says. “Some customers will have been granted overdraft limits when the economic situation was far more positive and stable, but now the landscape and their disposable incomes look very different.”

According to complaints website Resolver, while other banks are also removing overdrafts, Barclays appears to be the biggest offender. “Banks have a responsibility to ensure customers don’t get into debt,” says spokesperson Martyn James.

“But given the fact that credit card interest rates are reaching the highest levels since the 1990s, and other forms of lending are also creeping up to their highest rate in decades, the removal, or reduction, of overdraft rates seems counterproductive as millions of households struggle to make ends meet. The practice of slashing and removing overdraft limits is hardly within the spirit of the regulations.”

Banks have a regulatory requirement to treat customers fairly, and financial regulator the Financial Conduct Authority says it is monitoring the situation with overdrafts.

It says: “When making changes to available credit, we expect firms to consider the circumstances of their customers, including any vulnerability, to communicate clearly, and to allow people time and opportunity to challenge and complain if they disagree.

“With the cost of living rising, more consumers may need to turn to the credit market, including overdrafts. Lenders need to treat people fairly as individuals and consider their needs.”

Cheaper alternatives to overdrafts

Overdrafts are one of the most expensive forms of debt, with the cost of credit on many accounts running at almost 40%. One of the best rates at present is 15% from Starling Bank, according to financial information site Moneyfacts.

Nationwide’s FlexDirect offers a 0% overdraft but only for a year, and for those that are eligible.

Anyone who wants to pay off what they owe is advised by MoneySavingExpert’s Martin Lewis to use savings to do so, as the interest rates that you get from money in the bank are far less than the cost of using the overdraft.

Another option is to use a 0% interest credit card, but you will have to be eligible and ensure that you pay it off within the time frame.

A balance transfer fee typically applies of about 3% but this should be checked with the providers. Shane Hickey

This article was amended on 17 August 2022. An earlier version wrongly suggested that Barclays customers face paying high interest rates and charges if they are forced into using an unauthorised overdraft: Barclays customers cannot go over their overdraft limit, and there are no fees for attempting to make a purchase that would take a customer over their agreed limit.