Banking practice – use of cash machines (ATMs) and unarranged overdrafts
last updated November 2005
A customer used a cash machine (ATM) to make a withdrawal from his bank account. The amount withdrawn was greater than the credit balance on his account (although the customer said he did not realise this when he made the withdrawal) and subsequently the bank charged the customer an unarranged overdraft fee.
The customer objected to the bank's failure to prevent a withdrawal of funds from an account where there were insufficient funds in the account to cover that withdrawal and where there was no overdraft agreement between the customer and the bank. He also felt that the bank was not treating its customers fairly because it had set a trap for unwary customers and charged them for a service that they neither requested nor needed.
Both the FSA and the ombudsman service accepted that the case raised a wider-implications issue – though not a new one – but they both agreed that the wider-implications process should not be applied.
The banking practice of allowing customers to overdraw their account without prior arrangement is widespread and long-standing. There is no consensus that this is an issue that leads to consumer detriment. Although the customer in this particular case was dissatisfied, there are many customers who welcome the additional flexibility in managing their finances that an unarranged overdraft can provide for example, on occasions when they run out of cash or face unexpected bills. In addition the courts have decided that banks are entitled to treat a cheque taking an account into unauthorised overdraft as a tacit application to borrow.
The issue was primarily a matter of banking practice – covered by the Banking Code – rather than a matter for the ombudsman service or the FSA. This is because the ombudsman service does not usually deal with complaints about a firm's proper use of its commercial judgement, for example in deciding to give someone an overdraft and the FSA does not have regulatory responsibility for conduct of business issues such as that raised by this case.
The Banking Code sets minimum standards for the way banks and building societies treat their customers. It covers current accounts, including basic accounts, savings and deposit accounts, loans and overdrafts, cards and payment services including foreign exchange transactions. The Code is voluntary but all the major banks and building societies subscribe to the Code. The Code is enforced by the Banking Code Standards Board.
The customer was told how to contact the Banking Code Standards Board and how to make an individual complaint to his bank should he wish to do so.