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FCA set to report on overdraft fees and payday loan cap Overdraft fees: Regulator says 'status quo' not an option
(about 9 hours later)
The Financial Conduct Authority is set to indicate whether it is likely to change the rules for offering high-cost loans including overdrafts, door-to-door lending and payday loans. The "status quo is not an option" when it comes to the fees banks charge for unarranged overdrafts, the UK's financial services regulator has said.
The report - due to be published on Monday - follows a review of the sector by the financial watchdog. The Financial Conduct Authority has published its report into the rules governing high-cost lending, including unarranged overdrafts, door-to-door lending and payday loans.
One question is whether capped interest rates on payday lending have driven vulnerable consumers into borrowing from illegal loan sharks. It said new rules limiting payday loans were having a positive effect, however.
Overdraft fees are also of concern. Therefore the pay-day loan cap would be kept in place and reviewed in 2020.
The watchdog's definition of high-cost credit includes payday loans, home-collected credit, catalogue credit, some instances of "rent-to-own" lending for consumer goods, guarantor loans and pawn-broking. The FCA called for fundamental changes to the way banks charged customers going unexpectedly into the red.
Last November the FCA said it was launching the review into high cost loans in order "to build a full picture of how these are used, whether they cause detriment and, if so, to which consumers". "The nature and extent of the problems that we have found with unarranged overdrafts mean that maintaining the status quo is not an option," said Andrew Bailey, chief executive of the FCA.
Since then concerns have grown over high levels of personal debt. He said the FCA would work with banks to look at the design of the products rather than simply capping the charges banks can impose.
The City regulator - the Financial Conduct Authority (FCA) - and the Bank of England have both warned of an acceleration in consumer borrowing, such as loans, overdrafts, credit card debt and car finance. "We are now working to resolve these issues while preserving the parts of the market that consumers find useful."
The FCA has said it is concerned that there is poor price transparency when it comes to overdrafts and over the nature and level of charges, especially for unarranged overdrafts. However, the FCA said that regulation of high-cost short-term credit, known as payday lending, had delivered "substantial benefits" to consumers.
Complaints about payday loans hmore than doubled over the last year, despite strict new regulations limiting interest charges. The review found that 760,000 borrowers in this market are saving a total of £150m a year, firms are much less likely to lend to customers who cannot afford to repay, and debt charities are seeing far fewer clients with debt problems linked to high-cost short-term credit.
Since the start of 2015, payday loan rates have been capped at 0.8% per day of the amount borrowed, and no-one has to pay back more than twice the amount they borrowed.