Published on: 10 Jun 2019
The Financial Conduct Authority (FCA) is to target overdraft fees in what the financial regulator is calling the ‘biggest overhaul in a generation.’
Under new rules that will start by April 2020, banks and building societies will no longer be able to charge fixed daily or monthly fees for overdrafts. Also, banks won’t be allowed to charge higher fees for unplanned drafts than for arranged ones.
Banks earned more than £2.4 billion from overdrafts in 2017, with a third of that amount raised from unarranged overdrafts alone.
Around 19 million people use an arranged overdraft each year, and about 14 million of us use an unarranged overdraft each year.
Under these new regulations, banks will be forced to charge an annual interested on all overdrafts. The overdraft rate will need to be clearly presented in all advertisements to help customers choose the best product for them.
According to the FCA and seen on the BBC, these changes would make overdrafts ‘simpler, fairer and easier to manage.’
Banks will also have to do more to identify and support customers who are showing signs of financial difficulty.
Under the new rules, the cost of borrowing £100 through an unarranged overdraft would fall from £5 a day to just under 20p. However, those who have previously used arranged overdraft charges might end up paying more, or charges for accounts may rise. The new rules do not set a cap on the costs of arranged and unarranged overdraft prices.
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