FCA to change how banks charge for overdrafts

By Charlotte Richards

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Dec 20, 2018

The FCA has announced proposals to reform the way banks charge for overdrafts and other high-cost credit products. The regulator announced today its measures to bring an end to banks charging higher prices for any unarranged overdrafts.

In 2017, firms made more than £2.4bn from overdrafts, with roughly 30 per cent coming from unarranged overdrafts. The FCA says more than 50 per cent of banks’ unarranged fees came from just 1.5 per cent of customers in 2016. It says people living in “deprived areas” are more likely to be impacted by these fees and in some cases can be more than 10 times as high as fees for payday loans.

The FCA proposes steps for “radical change” to the market including: ensuring the price for each overdraft will be a simple, single interest rate – no fixed daily or monthly charges; banning fixed fees for borrowing through an overdraft; and telling banks to do more to identify overdraft customers who are showing signs of financial strain or are in financial difficulty, and to help them reduce their overdraft use.

A consultation was held in May this year and the FCA has already introduced some reforms to help consumers better engage with their overdraft. This means banks must provide digital eligibility tools allowing customers to check if they can get a cheaper overdraft elsewhere, overdraft charge calculators to help customers translate interest rates into money terms, and alters and charges to show overdrawn balances at cash machines to address unexpected overdraft use.

The regulator chief executive Andrew Bailey says: “These changes would provide greater protection for the millions of people who use an overdraft, particularly the most vulnerable. It is clear to us that the way banks manage and charge for overdrafts needed fundamental reform.”

“We are proposing a series of radical changes to simplify the way banks charge for overdrafts and tackle high charging for unarranged overdrafts. These changes would make overdrafts simpler, fairer, and easier to manage. Our consultation is informed by our analysis of retail banking business models, and how these are evolving in the face of significant technological change.”

The consultation is open until 18 March 2019. The FCA will consider feedback before publishing policy statements in June 2019.

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Money Marketing

Money Marketing, Centaur

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