FCA asks banks to explain 40% overdraft fees
The Financial Conduct Authority (FCA) has requested major high street banks explain why overdraft interest rates have spiked to almost 40 per cent.
The call comes after the watchdog demanded an overhaul of the overdraft system, in a bid to make the cost of the service clearer and easier to compare.
The new rules, due to come into place on April 6, will prevent banks from charging daily fees on unarranged overdrafts, dictating that they must offer an annual interest rate instead.
However, following the call for reform banks have hiked interest rates up to 39.9 per cent, meaning customers face paying £39.90 for every £100 they borrow within a year.
Millions of Brits risk being in a worse financial situation following the price rise as whilst those struggling with daily fees will see a reduction in cost, it appears that those who remain an arranged overdraft prisoner will pay more.Get debt help today
The FCA has demanded banks explain the decision on the new rates and how they plan to deal with any customers who may end up worse following the changes.
In a released statement, the watchdog said: “We expect firms to take positive steps to help customers who may be worse off or in financial difficulties as a result of these changes.
“We have asked to see their plans for how they are dealing with the most affected customers.
“We expect banks to take steps to support them, for example, firms could reduce or waive interest, offer a continuation of overdraft borrowing at current rate of interest, or agree a repayment programme – including a personal loan.”
According to the FCA, overdraft figures currently stand as the below:
- Around 19 million people use an arranged overdraft each year
- Around 14 million use an unarranged overdraft each year
- Around 7.3 million use both each year
On top of this, in 2017 banks made nearly £2.4 billion in revenue from overdrafts, 30 per cent of which came from unarranged overdraft fees and charges.
Speaking of the changes, Gareth Shaw, head of money at Which? said: “The changes introduced to provide clarity on overdraft fees and charges, and protect the most vulnerable, must also allow customers to shop around.
“The current lack of competition on overdraft pricing is disappointing, so it is right the regulator is taking a closer look.Get debt help today
“Banks should also be clear on how they are communicating the changes to customers and helping more of them choose the right type of credit product for their circumstances.”
It has been previously recognised by the FCA that the new rules may cause overdraft prices to increase. However, the authority continues to argue that the overall result will still be better for consumers as heightened competition between providers will curb any price increases.