FCA unveils overdrafts crackdown
BANKS and consumer credit providers may have to set up mobile alerts to warn customers of impending overdraft charges as part of a clampdown on high-cost finance.
The Financial Conduct Authority (FCA) has unveiled a package of measures aimed at store credit, rent-to-own and both arranged and unarranged overdraft facilities.
It estimates that banks made more than £2.3bn from overdrafts in 2016, with almost a third of this coming from fees charged on unarranged overdrafts.
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The City watchdog is consulting on mandating providers to issue mobile alerts warning of potential overdraft charges, stopping the inclusion of overdrafts in the term ‘available funds’ and requiring online tools to make the cost of overdrafts clearer.
It is also proposing that providers introduce online tools to assess eligibility for overdrafts and that consumer credit lenders make it clear that overdrafts are credit or borrowing.
The FCA has also said it is considering a separate consultation at another stage on banning fixed fixed overdraft fees other than for refusing a payment due to lack of funds and requiring the rate for unarranged overdrafts to align with arranged overdrafts, with any differences to be based on “significant and reasonable” differences in the cost of providing the credit.
“High-cost credit is used by over three million consumers in the UK, some of who are the most vulnerable in society,” Andrew Bailey (pictured), chief executive of the FCA, said.
“We have proposed a significant package of reforms to ensure they are better protected including the possibility of a cap on rent-to-own lending.
“The proposals will benefit overdraft and high-cost credit users, rebalancing in the favour of the customer.
“Our immediate proposed changes will make overdraft costs more transparent and prevent people unintentionally dipping in to an overdraft in the first place. However, we believe more fundamental change is needed in the way banks charge customers for overdrafts. Given the size of the market our work here will be completed as part of our wider review into retail banking.”
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John Cronin, financial analyst at Goodbody, backed the moves.
“The immediate reforms suggested by the regulator will save customers an estimated £140m a year while more ‘radical’ changes such as the banning of fixed fees and ending distinctions around unarranged and arranged borrowing costs are being considered,” he said.
“However, there is plenty of low-hanging fruit to pick off first as suggested by the FCA including mobile alerts warnings of potential charges and stopping the inclusion of overdrafts in ‘available funds’. We welcome the FCA’s move though we don’t see it as a highly material – or indeed an unexpected – move from a bank stock perspective.”
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