personal finance

Overdraft charges: Daily and monthly bank overdraft fees BANNED in major shake-up


Fixed daily or monthly fees for both arranged and unarranged overdrafts will no longer be allowed under new rules, the FCA have announced. The changes have been made in an effort to simplify the pricing of all overdrafts, and to end higher prices for unarranged overdrafts. Under the new rules, customers will not have to pay fixed fees, but will still have to pay an annual interest rate on the amount that they may borrow. The reform to overdrafts will not come into effect until April 2020.

The FCA said that the changes will make overdrafts “simple, fairer, and easier to manage”.

The money watchdog added that it would “protect the millions of consumers that use overdrafts, particularly more vulnerable consumers”.

Another change to the rules will see banks and building societies no longer able to charge higher prices for unarranged overdrafts than those which were arranged.

Banks and building societies will also have to advertise the arranged overdraft prices with an APR, helping customers to compare them against other products.

The FCA is issuing new guidance, in order to reiterate that refused payment fees should reasonably correspond to the costs of refusing payments.

It’s estimated by the authority that borrowing £100 via an unarranged overdraft will be reduced from a typical cost of £5 per day, to less than 20p per day.

Andrew Bailey, Chief Executive of the Financial Conduct Authority said: “The overdraft market is dysfunctional, causing significant consumer harm.

“Vulnerable consumers are disproportionately hit by excessive charges for unarranged overdrafts, which are often ten times as high as fees 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.

“The decisive action we are taking today will give greater protections to millions of people who use an overdraft, particularly the most vulnerable.”

Emma Craig, money spokesperson at MoneySuperMarket, commented on FCA proposals to reform the way banks and building societies charge for overdrafts.

She said: “Today’s interventions from the FCA are long overdue.

“Overdrafts have long been a minefield for consumers and the plethora of different rules regarding arranged versus unarranged agreements, fixed fees, interest rates and APRs fuels a lack of understanding.

“This announcement is not only a step in the right direction, but also a stark reminder of the responsibility for banks, building societies and the regulator to help consumers understand their financial circumstances and offer protection from unnecessary fees and charges.

“It’s important to note that consumers won’t see any of these changes until April 2020, so if you’re stuck in your overdraft, you need to take matters into your own hands.

“There are plenty of options available to manage the debt, including switching your current account or moving the overdraft balance to a 0 per cent credit or money transfer card.

“It’s worth taking the time to do your research, explore your options and find the best deal to suit your needs.”



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