Last year the Competition and Markets Authority concluded its two-year long banking inquiry, but the inquiry failed to tackle unarranged overdraft charges. Now the Financial Conduct Authority has agreed to review these unfair fees. So will this finally resolve the problem?
As many of you will know, Which? has been voicing its concerns around pernicious unarranged overdraft fees for quite some time now. Back in July, our research found that some banks are charging four times as much for an unarranged overdraft than a payday loan, making the sector a staggering £1bn-plus in funds.
At the time, we’d hoped the Competition and Markets Authority (CMA) would deliver a fairer regime as part of its banking inquiry and announce robust plans to tackle unarranged overdraft fees. However, when the CMA delivered its report in August, such plans were clearly missing.
The CMA’s plans to tackle these extortionate unarranged overdraft fees came in the form of a cap on charges, but a cap that would be set by the banks themselves. So just months after the CMA concluded its banking investigation, the Financial Conduct Authority (FCA) will now pursue it’s own review into overdraft fees and high interest loans.
Fairer overdraft fees
We were concerned that the CMA’s proposals wouldn’t be enough to control these extortionate fees. And we weren’t the only ones who were worried about this. Many of our campaign supporters told us that more needed to be done.
Some shared their dissatisfaction with the current system on Which? Conversation, too.
Supporters like JoH, who told us:
‘I have an issue with banks allowing overdrafts to people who clearly will not be able to repay the loan. A young person I know was recently allowed to run up a large overdraft even though he has been on welfare benefits from some years. This individual also suffers from mental health issues and I feel that the banks are preying on the most vulnerable to boost their profits. They should have a duty of care to their most vulnerable customers.’
As Wendy Dunne explained:
‘To charge astronomical fees to those people who go into overdraft, particularly by a small amount, is morally unacceptable. It’s like kicking someone who is already down.’
Summed up quite nicely by Keith Tindill, who said:
‘Bank customers should be treated fairly and transparently.’
These charges are a problem and action is needed, a cap that the banks can set themselves isn’t going to be enough. This is why we’ve been raising your concerns at every opportunity, as well as calling for the FCA to take action after the CMA’s inquiry failed to resolve the problem.
Most recently, our CEO Peter Vicary-Smith raised this issue at a session in Parliament declaring ‘somebody has to stand up for these consumers and say to the banks that this is the wrong way to be making profit’.
So, the FCA has agreed to investigate bank overdraft and loan fees. It was the FCA who brought forward the cap on payday loans and we hope it will act strongly here, too, delivering a fairer system for customers.
[Update: 31 July 2017] The FCA has agreed to undertake further research into unarranged overdrafts after publishing its report into high-cost credit today.
In its feedback statement published today, the financial regulator has expressed concerns about how unarranged overdrafts operate and noted that charges are high, complex and potentially harmful.
The FCA believes that fundamental changes in the way that unarranged overdrafts are provided may be necessary, and it will consider whether unarranged overdrafts should have a place in any modern banking market.
While this is promising news for those who’ve backed our Better Banking campaign, we hope the FCA now acts swiftly to crack down on these exorbitant fees and restricts unarranged overdraft charges to the same level as for arranged overdrafts.
Our research revealed last year that unarranged overdraft fees can be considerably higher than those of payday loans. But while payday loan charges are capped, and the FCA will maintain that cap for a further three years, the fees of unarranged overdrafts are not.
The regulator has cited four key issues with unarranged overdraft fees, and these are:
- Unanticipated charges and lack of transparency on fees;
- High charges, noting that some fees are higher than the payday loan cap;
- Repeated use in that many consumers use unarranged overdrafts regularly; and
- Distribution of charges where the worse off are paying a disproportionate amount for the provision of current accounts.
What do you think needs to be done to make unarranged overdraft fees fairer? Can more be done to deliver better banking for you?