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FCA calls for 'fundamental reform' to bank overdrafts

Tom Belger | 12:00 Thursday 31st May 2018

The FCA believes that the way banks operate and charge for overdrafts needs "fundamental reform".

The regulator has published the outcome of its high-cost credit review, whereby it announced new proposals to protect millions of people who use overdrafts and high-cost credit.

In its review, the FCA found that, in 2016, firms made an estimated £2.3bn in revenue from overdrafts, with 30% of this coming from unarranged overdrafts.

The majority of unarranged overdraft charges are paid by only 1.5% of customers, who pay around £450 per year in fees and charges.

The FCA is now putting forward immediate proposals from today – with regards to overdrafts – which it believes will save customers up to £140m a year.

Beyond that, the regulator will consider more radical options to ban fixed fees and end the distinctions around unarranged overdraft prices.

If appropriate, these options will be consulted on later this year to coincide with the wider strategic review into retail banking.

The FCA is also consulting on mandatory rules to make it easier for customers to manage their accounts, including:

• mobile alerts warning of potential overdraft charges
• stopping the inclusion of overdrafts in the term ‘available funds’
• requiring online tools to make the cost of overdrafts clearer
• introducing online tools to assess eligibility for overdrafts 
• making it clear overdrafts are credit or borrowing.

“Our immediate proposed changes will make overdraft costs more transparent and prevent people unintentionally dipping in to an overdraft in the first place,” said Andrew Bailey, chief executive at the FCA.

“However, we believe more fundamental change is needed in the way banks charge customers for overdrafts.

“Given the size of the market our work here will be completed as part of our wider review into retail banking.”

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