Overdrafts are one of the most widely used credit products. The Financial Conduct Authority (FCA) found that nearly 13 million people in the UK have been overdrawn in the last 12 months.
While overdrafts are meant to be a form of short-term lending, our paper reveals that many are becoming dependent on them. People who are frequently overdrawn and regularly going over their overdraft limit can find themselves in a cycle of borrowing that is very difficult to escape from.
Overdrafts are a widespread problem
More than half of our clients have overdraft debt. Our research also found:
- 2.1 million people were constantly in their overdraft in 2016
- Over three quarters (79%) of our clients we surveyed were constantly in their overdrafts in the 12 months before they came to us for advice
- Our clients typically get into overdraft debt to cover essentials; 81% of clients with overdrafts used them to pay for food, living costs, or household bills
3 ways to reduce the harm caused by overdrafts
In our briefing paper, we make three recommendations that will reduce the harm overdrafts cause. We're calling for:
- The abolition of unarranged overdraft charges
- Banks to do more to help their clients out of their arranged overdrafts in an affordable way
- The Financial Conduct Authority (FCA) to investigate unaffordable overdraft lending
Download the report to read our full recommendations.
Download our briefing