FCA asks banks to show working on overdraft pricing

In 2019, an FCA study into the overdraft market concluded that it was dysfunctional. In particular, it said, consumers found it very difficult to understand what charges they were paying and charges for unarranged overdrafts were very high, regularly 10 times the cost of a payday loan.

The reforms of the market have ended high unarranged charges, while confusing fees and charges have also been banned and the cost of overdrafts has been made more transparent. For many occasional borrowers the removal of fees means they will pay less even though their headline rate of borrowing may increase.

Now, the major banks and building societies are releasing their new rates – with most setting very similar prices. It is this that has prompted the FCA’s latest intervention, writing to banks asking them to explain how they reached their pricing decisions.

“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,” the FCA said. “We have asked to see (the banks’) 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.”

Peter Tutton, StepChange Debt Charity Head of policy, said: “We welcome this step from the FCA. The new rules on overdraft charges are absolutely necessary to end a longstanding cause of harm to the most financially vulnerable customers.

“But the FCA now need to be watchful that banks do not perpetuate unfairness or financial harm in another form. It is important that consumers see the new pricing as fair and competitive; and the FCA needs to be sure that the repeat use rules are effective in preventing more people from getting trapped in a cycle of expensive and harmful overdraft debt.”

The FCA will be among the speakers at the Credit Summit. Visit the Credit Summit’s website for further details.