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The Financial Conduct Authority (FCA) has announced a host of changes today to make overdrafts fairer and easier to manage. The summary of changes includes banning fixed fees, such as daily or monthly charges for using an overdraft facility and an end to higher pricing for unarranged versus arranged overdrafts.
Overdrafts cost the UK public £2.4bn in 2017 and more than 50% of banks’ unarranged overdraft fees came from just 1.5% of customers in 2016. In some cases, overdraft fees can be 10 times as high as fees for payday loans.
Further reforms published today, include the requirement for banks and building societies to help customers compare overdrafts by using an APR when advertising arranged overdrafts, pricing overdrafts more simply using an annual interest rate and ensuring refused payment fees reasonably reflect the costs of declining the actual payments.
The regulator will also require overdraft providers to identify customers in financial difficulty and develop a strategy to help these customers reduce repeat overdraft use.
Comprehensive research by the FCA with consumers showed they also wanted the costs of an overdraft shown in pounds and pence alongside the APR and interest rate. UK Finance – the trade body that represents the financial sector – has agreed to implement this alongside the other FCA requirements.
Andrew Bailey, chief executive of the FCA, said: “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 20p 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.”
The new rules come into force 6 April 2020, apart from the guidance on refused payment fees, which comes into force immediately.
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