FCA targets overdraft charging in new consultation

Proposals for radical reform of the ways banks and building societies charge for overdrafts have been put out to consultation by the UK's Financial Conduct Authority. 

The FCA sees harm to consumers, particularly vulnerable consumers, from what it calls "the disproportionate burden of high charges and repeat use of overdrafts". In a package of proposed changes it wants to address the complexity of overdrafts, the high level of charges and the harm from repeat use.

Under the proposals, lenders would be barred from charging higher rates when customers use an unarranged overdraft, and from charging fixed fees for borrowing through an overdraft (except where a payment is refused due to lack of funds, where charges are permitted under the Payment Services Regulations 2017). Instead, each overdraft would simply incur a single interest rate, with no fixed daily or monthly charges.

It also wants to standardise how arranged overdraft prices are presented in advertising, including an annual percentage rate (APR) to help consumers compare overdrafts against other products; to require lenders to do more to identify overdraft customers who are showing signs of financial strain or are in financial difficulty, and to help them reduce their overdraft use.

Further, the FCA is seeking to address low levels of awareness and engagement with overdrafts – having already consulted on this, its final rules are set out in this paper). It is also issuing new guidance to reiterate that refused payments fees should reasonably correspond to the costs of refusing payments.

Click here to access the paper. The deadline for responses is 18 March 2019.