Firms made over £2.4bn from overdrafts alone in 2017, with around 30% coming from unarranged overdrafts.

This comes as StepChange Debt Charity estimates that 2.1 million people spend the whole year in their overdraft.

The FCA is proposing that each overdraft should have a simple, single interest rate with no fixed daily or monthly charges.

It plans to stop firms from charging higher rates when customers use an unarranged overdraft.

The FCA’s proposals include banning fixed fees for borrowing through an overdraft and telling banks to do more to help customers who are in financial strain to reduce their overdraft use.

Meanwhile, the regulator is mandating that arranged overdraft prices are advertised in a standard way, including an APR to help customers compare them against other products.

The FCA is also making changes – proposed in May 2018 – to tackle harm to consumers in the home-collected credit, catalogue credit and store card sectors.

Both of these consultations are open until 18^th March 2019.

Andrew Bailey, chief executive at the FCA, said: “These changes would provide greater protection for the millions of people who use an overdraft, particularly the most vulnerable.

 “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.”

Following a consultation in May, the FCA introduced reforms which required banks and building societies to provide:

• digital eligibility tools that allow customers to check if they can get a cheaper overdraft with another provider
• overdraft charge calculators that help customers translate interest rates into pounds and pence
• alerts and changes to show overdrawn balances are displayed at cash machines will address unexpected overdraft use

Andy Buller, key account director at Consumer Intelligence, added: “It is vital that banks demonstrate a duty of care to their customers by providing the best financial advice and support possible.

“Customers need to be educated and aware of the financial risks associated with relying on short-term borrowing through overdrafts.”