FCA to Reform Overdraft Market

The Financial Conduct Authority (FCA) is to introduce reforms to change the ‘dysfunctional overdraft market’ The aim is to make them more fair, simpler and open.

In 2017 firms made £2.4bn from overdrafts, 30% of this coming from unarranged overdrafts. People living in more disadvantaged areas were more likely to feel the effect of these fees. In some instances, it was reported that the fees can be ten times higher than that of a pay day loan.

The FCA has announced the following changes will come into force in April 2020:

  • Stopping banks charging more for unarranged overdrafts than for those arranged.
  • Banning fixed fees through using an arranged overdraft
  • Ensure banks price overdrafts at simple annual rate

Andrew Bailey, Chief Executive of the FCA said:

‘The overdraft market is dysfunctional, causing significant consumer harm. Vulnerable consumers are disproportionately hit by the excessive charges for unarranged overdrafts, which are often ten times as high as feed 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. We are simplifying and standardising the way banks charge for overdrafts. Following our changes, we expect the typical cost of borrowing £100 through an unarranged overdraft to drop from £5 a day to less than 20 pence a day.’

https://www.fca.org.uk/print/news/press-releases/fca-confirms-biggest-shake-up-overdraft-market

 

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