Regulator asks banks to explain 40% overdraft rates
The UK’s financial regulator has asked banks to explain how they have decided their new overdraft rates. The Financial Conduct Authority (FCA) said most High Street banks had set “very similar prices”, after it demanded changes to the system.
Several big brands including Santander, Lloyds Banking Group and HSBC are set to bring in a 39.9% rate this year. The FCA has sent a letter to banks, asking them to explain what influenced their decision.
The City regulator has also asked how the banks will deal with any customers who could be worse off following the changes.
It said some firms could reduce or waive interest for customers who are in financial difficulty because of their overdraft.
Christopher Woolard, interim chief executive at the FCA, told the BBC’s Today programme that seven in 10 customers would be better off or unaffected by the new rules.
“If you had an unarranged overdraft before, you saw some rates that were 10 times higher than the equivalent payday loans.
“The reforms force banks to publish clear headline rates, without fixed fees and charges in them. In some banks, as many as nine in 10 customers will be better off, or no worse off.”
The FCA has introduced tough new rules for the “dysfunctional” overdraft market. It says it wants to get rid of “confusing” fees for customers.
The new rules, which come into force in April this year, will stop banks and building societies from charging higher prices for unarranged overdrafts than for arranged overdrafts.
They will also require providers to charge a simple annual interest rate on all overdrafts and to get rid of fixed daily or monthly fees. However, some analysts have warned that steep overdraft rates could become “the new normal”.