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FCA considers banning overdraft fees

Monday, 31st July 2017

The Financial Conduct Authority (FCA) is to consider banning overdraft charges following their review of the high cost credit sector. The FCA believes that fundamental changes in the way that unarranged overdrafts are provided may be necessary as charges for unarranged overdrafts are often high and can be complex making it hard for consumers to understand.

The high cost when overdrawn

Some UK banks can charge customers up to £6 a day, or as much as £90 a month just for going overdrawn without authorisation from their bank. Earlier this month, the UK's largest lender, Lloyds Banking Group confirmed they will be stopping unarranged overdraft fees from November this year.

Payday loans

The FCA revealed that there will be no change to the existing payday loan price cap already in place, and will review it again in 2020. The cap means that no one customer is required to pay more than 0.8% a day in interest of the amount borrowed and the maximum amount a customer would pay is no more than twice the amount they borrowed. The review also found that 760,000 borrowers in this market are saving a total of £150m per year.

Other forms of high cost credit v cash

The FCA also identified particular concerns with other forms of high-cost credit such as rent-to-own, home-collected credit and catalogue credit sectors. Typically, these items would be televisions, washing machines and fridge freezers. The total cost of these items can sometimes be three or four times than if they were purchased using cash. The FCA will consult on action to address these concerns in Spring 2018.  You can read the full FCA press release here

DebtWizard founder, Mike Thomas, said:

“Overdraft fees, high cost credit and persistent credit card debt are real concerns many families and I wholeheartedly concur with Mike O’Connor, Chief Executive of StepChange Debt Charity, when he said":

“The FCA has said that the status quo on unarranged overdrafts is not an option and that there is a case for fundamental reform. The charges for unarranged overdrafts are a real problem for our clients and it is disappointing that no action will be taken until spring 2018. The market is already showing signs of movement on this issue, so there is no need to delay vital changes that could address a major source of consumer detriment.”

 

 

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