Financial Conduct Authority set to tackle overdraft charges

The Financial Conduct Authority (FCA) has announced proposals to tackle overdraft charges as part of its review into the high cost of credit.

The FCA revealed that in 2017, firms made over £2.4bn from overdrafts, with around 30% of that figure coming from unarranged overdrafts.  Of particular concern was the fact that more than 50% of unarranged overdraft fees came from just 1.5% of customers with people living in deprived areas being more likely to be impacted by these fees.

To address this problem, the FCA has proposed a range of measures including ensuring overdrafts have simple and consistent pricing based on interest rates not fixed charges, not charge higher rates for unarranged overdrafts and making sure sure banks identify customers in persistent debt in order to help them reduce their overdraft use,

Andrew Bailey, Chief Executive of the FCA said ‘Today we are proposing to make the biggest intervention in the overdraft market for a generation. 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.’

Commenting on the proposals, Debt Advice Foundation CEO David Rodger said ‘We welcome the FCA’s proposed changes to how overdrafts are priced.  Overdrafts account for the fourth highest amount of problem debt we deal with and often carry the most significant servicing cost for borrowers.  It’s also often the most vulnerable members of society that are disproportionately affected by overdraft charges as they find themselves trapped in a cycle of debt.  Hopefully, this package of measures will help those that are struggling with persistent overdraft debt to get back on an even keel.’