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United Kingdom: Two Banks Found in Breach of Overdraft Alert Requirement, Must Refund Customers

(Dec. 20, 2019) Two banks with headquarters in the United Kingdom, HSBC and Santander, recently reached an agreement with the Competitions and Market Authority (CMA) to refund customers’ overdraft fees that were incurred after the banks breached Part 6 of the Retail Banking Market Investigation Order 2017 (the Order). This Order was made by the CMA, a nonministerial department responsible for promoting competition to benefit consumers under powers granted to it in the Enterprise Act 2002. Part 6 of the Order requires that banks send customers a text alert before charging them for entering into an unarranged overdraft. The text alert is designed to provide the customer with time to take action to avoid the charges, which form approximately one third of the banking industry’s revenues. The banks failed to alert their customers by text message that they were about to enter into an overdraft and must now refund the overdraft charges of these customers.

HSBC broke the order two times and must refund over $10 million to 115,750 customers who incurred overdraft fees without receiving text alerts, amounting to an average of £69.50 (approximately US$90) per HSBC customer affected. The total refund per customer will vary according to the amount they were charged for the overdraft. Santander breached the order six times, but the amount that it must refund has not yet been determined. The CMA first reported that the banks first breached the Order in February 2018, which is when it first entered into force. The CMA also requires that HSBC and Santander undergo independent compliance checks between February 2018 and December 2019 to ensure they have met the obligations contained in the Order.

The order was introduced by the CMA as a result of its findings in the Retail Banking Market Investigation, which was provided for by section 136 of the Enterprise Act 2002. The investigation determined that charging overdraft fees without alerting customers was having an adverse effect on competition. The report recommended introducing an overdraft alert remedy, requiring providers to auto-enroll customers in these alerts. To introduce this requirement, along with other issues, the CMA introduced the Retail Banking Market Investigation Order 2017. If the duties contained in the Order are not met, any person who suffers loss or damage can bring an action. The CMA also has powers under the Order to give directions to ensure that individuals comply with the obligations in the Order, as it has done in the HSBC and Santander cases.