The Financial Conduct Authority (FCA) has announced a ‘radical’ clampdown on overdraft charges, which banks made £2.4 billion from in 2017 alone.
In a statement this morning, the regulator said vulnerable people and those living in deprived areas are being hit the hardest by the ‘dysfunctional’ overdraft market, with a particular attack on unarranged overdraft charges.
The FCA said more than half of banks’ unarranged overdraft charges came from 1.5% of its customers in 2016.
In order to remedy the market, the FCA announced:
- A ban on fixed fees for overdraft borrowing, with charges instead to be a ‘simple, single interest rate’;
- Preventing banks from charging higher prices for unarranged overdrafts;
- Making banks do more to identify customers in financial difficulty and ‘to help them to reduce their overdraft use'.
FCA chief executive Andrew Bailey said: ‘Today, we are proposing to make the biggest intervention in the overdraft market for a generation. 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. We are proposing a series of radical changes to simplify the way banks charge for overdrafts and tackle high charging for unarranged overdrafts.’