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| FCA to investigate banks' high-cost credit including overdrafts | FCA to investigate banks' high-cost credit including overdrafts |
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| The City regulator is to launch an investigation into loans that charge high interest rates in a move that will also wade into the controversy over fees on overdrafts. | |
| The decision by the Financial Conduct Authority (FCA) to look at overdraft charges comes after the Competitition and Markets Authority stepped back from imposing a limit on these fees after a two-year investigation into high-street banking. | |
| In its response to the CMA’s findings, which were published in August, the FCA said it was preparing to review “high-cost, short-term credit” which is likely to also include products such as payday loans. | In its response to the CMA’s findings, which were published in August, the FCA said it was preparing to review “high-cost, short-term credit” which is likely to also include products such as payday loans. |
| The CMA stepped back from imposing a cap on overdraft fees - which campaigners such as Labour MP Rachel Reeves argue cost more than payday loans – and instead said banks should publish their monthly maximum charge (MMCs). | |
| The FCA will look at whether new rules are needed around these MMCs and take up other recommendations from the CMA to test “prompts” such as text messages sent to customers before they go overdrawn. | |
| But it is also going further, according to Christopher Woolard, executive director of strategy and competition at the FCA. “Our role in regulating retail banking markets goes beyond the remedies the CMA has asked us to take forward, and we will continue to look more broadly at how well these markets work, with a particular focus planned on high-cost credit including overdrafts. We will also be looking at wider retail banking business models,” he said. The CMA will launch a call for evidence in the coming weeks. | |
| The FCA’s remit is wider than the CMA’s, which covers competition, and can also look at whether customers need protection. It has capped charges on payday loans at 0.8% per day of the amount borrowed since last year. | The FCA’s remit is wider than the CMA’s, which covers competition, and can also look at whether customers need protection. It has capped charges on payday loans at 0.8% per day of the amount borrowed since last year. |
| The regulator said that some campaigners had argued that un-arranged overdraft fees – from which banks make £1.2bn a year – should be set at the same level as arranged overdrafts. | |
| “We will undertake work in the area of overdrafts to help ensure that markets work well for all users and that these customers are appropriately protected,” the FCA said. | “We will undertake work in the area of overdrafts to help ensure that markets work well for all users and that these customers are appropriately protected,” the FCA said. |
| Alasdair Smith, who led the investigation by the CMA, appeared before MPs on the Treasury select committee on Tuesday and was forced to defend its conclusions which focus on boosting competition by encouraging customers to compare their account details with rivals. | Alasdair Smith, who led the investigation by the CMA, appeared before MPs on the Treasury select committee on Tuesday and was forced to defend its conclusions which focus on boosting competition by encouraging customers to compare their account details with rivals. |