FCA examine overdraft charges

November 4, 2016
Lucy_2 (Custom)By Lucy Palmer-Richeson

The city watchdog the Financial Conduct Authority (FCA) has announced it will launch an investigation to look at hefty fees on overdrafts and loans, despite a competition watchdog rejecting the idea earlier this year.

The FCA claims that customers are being charged excessive fees on overdrafts, sometimes as much as £100 per month, and says a limit on overdraft fees should be put in place.

This is in response to a two-year investigation, completed in August, into high-street banks carried out by The Competition and Markets Authority (CMA).

The CMA published a series of measures to change the way that high-street lenders do business, but there has been criticism that these measures just aren’t enough to make the necessary changes to take the immense power away from the banks.

The CMA suggested that banks be responsible for setting their own maximum monthly charges (MMCs) on overdrafts, rather that have regulators decide on a cap for them. However, the FCA said it was going to review “high-cost, short-term credit” which not only include overdrafts but also products like doorstep lending and payday and logbook loans.

According to Joanna Elson, chief executive of the Money Advice Trust: “The CMA’s proposed monthly maximum charges are a small positive step but are ultimately unlikely to make the difference required in bringing down the extremely high charges that many people in financial difficulty end up paying.”

Andrew Tyrie, chair of the Treasury committee, said of the decision: “The FCA have acted quickly. It looks as if they may be prepared to pick up the baton that the CMA has just dropped.

“They will need to go much further than the CMA if the root causes of weak competition are to be addressed.”

He added: “Additional work on excessive overdraft charges is certainly welcome. But it probably won’t be enough unless the consumer is offered meaningful choice in a competitive market.

“The committee will explore with the FCA what their unspecific proposals on ‘retail banking business models’ really mean when we see them on November 8.”

The FCA said that banks make £1.2bn a year on unarranged overdraft fees, and that campaigners suggest the amount should be set at the same level as for those that have arranged overdrafts. Consumer watchdog Which? reported that borrowers that take out £100 through an unauthorised overdraft for a month can be charged as much £90 from some high-street lenders. This is as much as four times higher than the maximum allowed charges on a on a payday loan, which is £22.40.