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Banks to be banned from charging excessive unarranged overdraft fees by FCA

Published on:December 21, 2018Author:alex

Banks will be banned from charging “rip-off” unauthorised overdraft fees under new proposals from the Financial Conduct Authority (FCA).

As reported by The Independent, under the new proposals announced on Tuesday, banks will no longer be able to charge different rates for arranged and unarranged borrowing.

Although charities believe the move could help thousands of people from staying stuck in debt, there are also concerns that the ban may lead banks to try and recover the money they lose in high overdraft charges via other means.

Bev Budsworth MD of The Debt Advisor said: “Around 14 million people are affected by these charges which net the banks around £700 million. Banks are likely to look to recover the lost revenue by possibly increasing overdraft charges for all.

“Could this also lead to a tightening of lending criteria? The overdraft forms a vital part of cash management for millions and we definitely need common sense to prevail.”

Earlier this year, Which? found that unauthorised overdraft fees charged by some banks were up to seven times more expensive than payday loans – an area the FCA have already cracked down on.

The research found that those living in deprived areas of the country were disproportionately affected by unauthorised overdraft fees.

Research from Citizens Advice found that those with insecure incomes were twice as likely to have paid arranged overdraft fees as those with more stable incomes.

The charity also found that more than a third of those in problem debt in the UK paid overdraft fees.

FCA chief executive Andrew Bailey, said: “[The reforms are] the biggest intervention in the overdraft market for a generation.

“It is clear to us that the way banks manage and charge for overdrafts needed fundamental reform. These changes would make overdrafts simpler, fairer, and easier to manage.”

The FCA will also ban fixed daily or monthly fees, as well as fixed fees which charge a customer a set amount for going into their overdraft.

In addition, banks will no longer be able to charge different rates for arranged and unarranged borrowing.

The FCA added they will also tell banks to do more to identify customers showing signs of financial difficulty in order to help them to use their overdraft less.

However, the changes will not come in until at least June 2019 after the FCA has considered feedback and published a policy statement.

High street lenders made more than £2.4bn from overdrafts in 2017, with 30% of that reportedly coming from unarranged borrowing.

The overdraft proposals are the latest step in the FCA’s review of high-cost credit, which has also included price caps imposed on payday lenders, a proposed cap on rent-to-own providers, and greater protection for consumers on store cards and catalogue credit.

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