The FCA has introduced reforms to help fix the overdraft market.
The changes — which will be in force by 6th April 2020 — will make overdrafts simpler, fairer and easier to manage, and the FCA hopes that this will protect millions of users.
The FCA has announced that it is:
- preventing banks and building societies from charging higher prices for unarranged overdrafts than for arranged overdrafts
- banning fixed fees for borrowing through an overdraft — an end to fixed daily or monthly charges and fees for having an overdraft facility
- requiring banks and building societies to price overdrafts by an annual interest rate
- requiring banks and building societies to advertise arranged overdraft prices with an APR to help customers to compare them against other products
- requiring banks and building societies to do more to identify customers who are showing signs of financial strain, and implement a strategy to reduce repeat overdraft use
- issuing new guidance to reiterate that refused payment fees should reasonably correspond to the costs of refusing payments
“The overdraft market is dysfunctional, causing significant consumer harm,” said Andrew Bailey, chief executive at the FCA.
“Vulnerable consumers are disproportionately hit by excessive charges for unarranged overdrafts, which are often 10 times as high as fees for payday loans.
“Consumers cannot meaningfully compare or work out the cost of borrowing as a result of complex and opaque charges, that are both a result of and driver of poor competition.
“Our radical package of remedies will make overdrafts fairer, simpler and easier to manage.
“Following our changes, we expect the typical cost of borrowing £100 through an unarranged overdraft to drop from £5 a day to less than 20p a day.”
SIGN UP TO OUR NEWSLETTER TO RECEIVE MORE NEWS LIKE THIS STORY
N26 introduces MoneyBeam to UK users
N26 has introduced MoneyBeam to its UK users which will enable them to instantly send money to other users of the mobile bank...
NatWest names new CEO for Mettle
NatWest has named Marieke Flament (pictured above) as the CEO of its SME digital banking subsidiary Mettle...
CYBG to rebrand as Virgin Money and launch a new business current account
CYBG has revealed that it will rebrand to Virgin Money over the next two years with new Virgin Money-branded products...
New bank Chetwood Financial reveals long-term ambitions
Chetwood Financial is aiming to use technology to offer better deals to customers, having secured a banking licence late last year...
The opportunity for accountants to help businesses
In light of bank and building society branch closures, a new report published by Oxford Economics in partnership with Funding Circle has revealed that in the UK — despite the vast economic output generated by SMEs — small business lending accounts for only 2% of banks’ balance sheets...
Paragon Bank’s structured lending team passes £100m milestone
Paragon Bank’s structured lending team has passed its £100m milestone 18 months after launching...
Hanley Economic expands intermediary support team
Hanley Economic Building Society has appointed Kate McKeon (pictured above) as an intermediary sales assistant...
Gatehouse Bank names new direct adviser
Gatehouse Bank has appointed Robert Siddall (pictured above) as a direct adviser...
British Business Bank increases facility with Simply to £180m
Non-bank lender Simply has received a third facility of £60m from the British Business Bank under the latter’s ENABLE funding programme...
OakNorth provides facility for cloud platform provider acquisition
OakNorth has provided a loan to managed service and cloud platform provider Oncore IT for the acquisition of Fuse Technologies...
Monzo to launch first USA accounts this summer
Monzo has announced it will be launching its first accounts in the USA this summer...