Radical shake-up of overdraft charges will restrict fees

A regulator has confirmed a series of reforms to overdrafts that it says will ban fixed fees and simplify rates paid by consumers.

In what it described as the biggest shake-up of the rules for a generation, the Financial Conduct Authority (FCA) said banks will be stopped from charging more for unarranged overdrafts than they do for arranged overdrafts.

Fixed fees for borrowing through an overdraft will be banned and banks and building societies will have to price overdrafts by a simple annual interest rate.

Banks and building societies will also have to do more to identify customers who are showing signs of financial strain and to help reduce repeat overdraft use.

In 2017, firms made over £2.4bn from overdrafts, with around 30% from unarranged overdrafts.

More than 50% of banks’ unarranged overdraft fees came from just 1.5% of customers in 2016, many of them vulnerable customers in deprived areas.

He added: “This is a dysfunctional market at the moment and we want to make it easier and clearer and fairer for people to use overdrafts.”

He said that current charges for an unarranged overdraft could be around £5 a day but “in future we think it should cost around 20p”.

“This is a forward-looking measure, there is no suggestion in any of the work that we’ve done that banks or others had broken the rules that existed at the time,” he added, ruling out the possibility of any compensation for those who have been paying high overdraft fees for years.

Some of the changes will come into effect immediately, such as the guidance on refused payment fees.

Others will take “a little bit of time”, Mr Woolard said, adding that the full range of measures should be in place by April next year.

“There are changes banks will need to make with their systems and how they interact with their customers, so this is going to take time to get it right.”

Source : Sky News : http://news.sky.com/story/radical-shake-up-of-overdraft-charges-will-restrict-fees-11736587