Last updated: May 2007
Reversing the Charges

HSBC has abandoned its plan to begin charging interest on overdrafts for new graduates. A Facebook group challenging the multi-national bank on their proposed policy played a major role in bringing about the change.

Thousands of student and graduate Facebook users signed up to the group created by NUS Vice-President (Education) Wes Streeting. Group members had threatened to boycott the bank and had planned a protest action at the UK’s HSBC headquarters for September 4 which was subsequently called off. The National Union of Students (NUS) said the weight of support online made all the difference to the protest.

Following the bank’s change in policy and the release of a joint statement by HSBC and the NUS, the updated Facebook group (with almost 7,000 members) now states: “HSBC have contacted NUS to discuss this campaign.

Following our discussions and negotiations, HSBC have decided to freeze interest on 2007 graduate overdrafts up to £1,500, with future policy subject to review. All those recent graduates who have been subject to additional interest charges this August will be eligible for a refund.”

Whilst this confirms that HSBC’s implementation of the plan to introduce overdraft interest for recent graduates in 2007 has been withdrawn, their u-turn has been referred to by the bank as a ‘freeze’ suggesting that the policy itself has not been completely disregarded, but merely put on the shelf, to potentially return at a later date.

The decision to introduce interest fees on graduate overdrafts has been a public relations nightmare for the financial heavyweight that calls itself ‘The World’s Local Bank’. When the BBC announced HSBC’s change of mind on August 30, the story quickly became the news site’s most read story of the day. The story has been widely reported in newspapers and online since the bank first announced their plans during the summer.

Before the ‘freeze’ HSBC had become the first high street bank to scrap free borrowing for university leavers. Traditionally, banks have allowed new graduates a three-year interest-free period on their student overdrafts so that they can clear the balance with greater ease. When the new policy came into force on July 16, new graduates with an HSBC account had their finances transferred to a new standard graduate account and began paying 9.9% interest on their overdraft a month later. For those with the maximum overdraft of £1,500, this would have cost almost £12 a month, or £142 a year.

Customers wanting to avoid paying interest on their overdraft were offered the alternative of choosing a premium account, with an interest-free overdraft, for £9.95 a month, thereby paying a fee of nearly £120 a year.
At the time HSBC said this would prepare students for life after university. Karen Garner, a spokeswoman for HSBC said: “This gets the message across that there is a cost to borrowing, and prepares graduates for the transition from student life to that of a young working professional.”

Students on the Facebook group called press department responses ‘spin’ and complained that this will only hit hard-up graduates who are either waiting to start a new job after the summer or are struggling to find a job at all.
Those who graduated before this summer were unaffected by the change and would still have access to an interest-free overdraft for the next two years.

Financial commentators spoke of their astonishment at HSBC’s decision to introduce interest fees on new graduate accounts before the recent protests caused the bank to re-evaluate their decision, whilst others expected HSBC to suffer only marginally - benefiting from customer apathy.
Michelle Slade, of price comparison site Moneyfacts.com, told The Times: “I’m very surprised. The impression is that they aren’t interested in the graduate market anymore. With the amount of free overdraft deals available graduates will almost certainly look elsewhere.”

The bank’s reversal of their decision leaves many wondering whether this is proof that they do value student and graduate custom, although it is more likely that they don’t like being high profile bad news.

In a joint statement by HSBC and the NUS Andy Ripley, HSBC’s head of product development said: “Like any service orientated business we are not too big to listen to the needs of our customers. Following the feedback from our graduate account holders, both directly and via the National Union of Students (NUS), we have taken the decision to freeze interest charging on 2007 graduates’ overdrafts up to £1,500 and refund any interest charged in August. We are also pleased that we will be working with the NUS to enhance our new account offer so that it fully reflects the needs of recent graduates”.

HSBC has consistently offered undergraduates less free borrowing than its high street rivals. Barclays offers an interest-free overdraft of up to £3,000 in the first year after leaving university falling to £1,000 after three years whilst Natwest, Royal Bank Of Scotland, Abbey and Lloyds/TSB all offer third-year students an interest-free overdraft of £2,000 when they graduate, falling to £1,000 or £500 after three years.

For HSBC’s graduate customers, overdraft borrowing that exceeds the bank’s interest free limit will, as before, be charged at the bank’s current account rate, which is currently at 18.8%. So an HSBC graduate overdraft of £2,000 will cost over £28 a month, or £347 in a year whereas with other high street banks that level of borrowing would be free for the first year after graduation.
The risk for HSBC is that, even with the ‘freeze’ of their new policy, bad publicity will have attracted too much attention to their costs and facilities thereby provoking large numbers of their student customers to close accounts and migrate to their competitors. The online protest group also kicked off at an unfortunate time for HSBC when all the major banks are seeking to recruit new student customers at the beginning of the academic year.

NUS vice president Wes Streeting said: “There can be no doubt that using Facebook made the world of difference to our campaign.”

“By setting up a group on a site that is incredibly popular with students, it enabled us to contact our members during the summer vacation far more easily than would otherwise have been possible. It also meant that we could involve our former members - the graduates who were going to be most affected by this policy.”

NUS President, Gemma Tumelty, said: “We are very pleased that HSBC have listened to the concerns of their student and graduate customers. NUS welcomes this decision and looks forward to future dialogue with HSBC about how their account offerings can benefit students and graduates alike.”

“Students and graduates are valuable future customers for banks, and it is therefore crucial that those banks recognise that their support and fair treatment is likely to be rewarded with customer loyalty in the long term. NUS is committed to encouraging students to think hard about the consequences of increasing debt and to managing their money carefully by choosing the appropriate account for their circumstances.”

by Lucy Scott