The Financial Conduct Authority (FCA) has revealed a number of changes to overdraft fees and charges, which makes the system easier to manage and more customer friendly. Overdrafts cost the British public £2.4 billion in 2017, and in some cases overdraft fees can be up to as much as 10 times the fee for a payday loan. No wonder competition and rates in the unsecured loans market are so competitive and continuing to be so, the alternatives seem totally unreasonable.
The FCA have called for a number of changes such as banning fixed fees, such as daily or monthly charges, and have demanded an end to exorbitant charges for unauthorised overdraft usage versus arranged overdrafts. The regulator has also insisted that banks and building societies help the customer to understand overdrafts better, by using an APR when advertising rates to price overdrafts more simply, and to more fairy reflect the actual costs of declined or missed payments when dealing with unauthorised issues.
The FCA has also insisted that the lender is able to identify customers that may be in financial difficulty and devise strategies and plans to help the customer moving forward. The objective is to help those customers reduce continued overdraft reliance and use, by perhaps offering alternative products such as an unsecured loan which may be more suited to the customers’ needs.
Research conducted by the FCA highlighted that customers wanted the costs of an overdraft shown in pounds and pence alongside the APR and interest rate. Thus UK Finance (the trade body that represents the financial sector) has agreed to implement this alongside the other FCA requirements.
Chief executive of the FCA, Andrew Bailey said: “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 20p a day. The decisive action we are taking will give greater protections to millions of people who use an overdraft, particularly the most vulnerable.”
So when does all this come into force? The FCA guidance on refused payment fees comes into effect immediately, with the rest of the new rules implemented on the 6th April 2020.