The FCA is to make sweeping changes to the ‘dysfunctional’ system of banking overdraft charges that takes £2.4bn from the pockets of UK consumers every year.
The current complex range of fees and charges, including daily charges, will be removed in favour of a simple to understand interest rate.
Under the proposals banks will not be able to charge different amounts for unarranged overdrafts vs arranged overdrafts, an area where banks have been fleecing customers for decades.
“These changes would provide greater protection for the millions of people who use an overdraft, particularly the most vulnerable. It is clear to us that the way banks manage and charge for overdrafts needed fundamental reform.” – FCA chief executive – Andrew Bailey
The new consumer protection rules will come into force at the end of 2019, giving banks plenty of time to figure out how to respond, and to continue to abuse customers in the meantime.
Just last month Lloyds, Halifax and the Bank of Scotland all announced they were going to significantly increase their overdraft fees from January.
There is currently a huge disparity between different banking services and how much they charge. For example whereas the Santander 123 Current Account charges £1 per day on overdrafts up to £2,000 – the RBS/Natwest select account charges £8 per day, capped at £80 per month.
According to Which? the worst offenders for overdraft charges are TSB, Royal Bank of Scotland and NatWest. If you are thinking of getting a current account before the new rules come into place and think you may dip into your overdraft you may want to avoid these banks.
The worst thing about overdraft fees, as found by the FCA, is that they hit the poorest people and those least able to pay the hardest.