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Tuesday, May 26, 2020


FCA introduces reforms for 'dysfunctional' overdraft market

Sam Monk | 15:20 Monday 10th June 2019

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.”

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