monitor and review periodically the pattern of drawings and repayments of each of its customers under an arranged overdraft or an unarranged overdraft, and other relevant information held by the firm; and
identify, by reference to an appropriate collection of factors, any customers in respect of whom there is a pattern of repeat use, and then sub-divide those customers into the following two categories:
1The policies, procedures and systems referred to in CONC 5D.2.1R should, having regard to the nature, scale and complexity of the firms’ consumer credit lending activity in relation to overdrafts, enable the firm, at regular intervals, to pro-actively look back over an appropriate period at patterns of overdraft use.
A firm may decide the frequency with which it reviews previous overdraft use, and the length of the preceding period of overdraft use that it considers when doing so, provided that the firm can demonstrate that its policies, procedures and systems are effective in promptly identifying customers who are within CONC 5D.2.1R(2)(a) or (b).
CONC 5D.2.1R does not specify the frequency, duration or amount of drawings that may constitute repeat use. Firms have discretion, therefore, to tailor the policies, procedures and systems required by CONC 5D.2.1R to their specific business circumstances. If a customer has become or remained overdrawn in every month over the preceding 12-month period, it is likely that the customer will be within CONC 5D.2.1R(2)(a) or (b). It is also likely, however, that there will be other patterns of drawings in fewer numbers of months that are caught by CONC 5D.2.1R(2)(a) or (b). There need not necessarily be drawings under an overdraft in consecutive months in order for use to be properly treated as repeat use. Conversely, there may be small and temporary drawings, even in consecutive months, that are neither indicative of actual or potential financial difficulties nor the cause of high cumulative charges.
When determining whether there is a high cumulative charge for overdraft use which may be harmful, the firm should consider the total amount of the combined charges both in absolute terms and relative to the customer’s financial circumstances, where known.
Where there is a pattern of repeat use of an overdraft associated with a personal current account, features of that use and other factors which may be a sign of actual or potential financial difficulties include:
an upward trend in a customer’s use of the overdraft over time, having regard to one or both of the following:
changes to the regular credits or debits to the personal current account, which may indicate a fall in disposable income or increased expenditure;
use of other products which may indicate a fall in disposable income or growing indebtedness (for example, a reduction in the balance of a savings account, or an increase in the outstanding balance on another credit product) of which the firm is aware or ought reasonably to be aware from information in its possession;
the use of an unarranged overdraft associated with the personal current account, especially if becoming larger, more sustained or more frequent over time;
the incidence of refused payments in relation to the personal current account, especially if there is a rise in the number or frequency of refused payments over time;
A customer may in fact be in actual or potential financial difficulties even if none of the factors described above is present, so the customer’s response to the firm’s initial intervention will be important for determining the appropriate next steps.
When a firm is first implementing policies, procedures and systems to identify customers in respect of whom there is a pattern of repeat use, the firm should give priority to identifying those customers who are vulnerable and experiencing, or at risk of, financial difficulties, in circumstances where prioritisation is appropriate in the light of the scale and complexity of the firm’s consumer credit lending activity in relation to overdrafts.