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Overdraft fees: Regulator says 'status quo' not an option Ban on unarranged overdraft charges considered by FCA
(35 minutes later)
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. Charges for unarranged bank overdrafts could be banned, under one option being considered by the Financial Conduct Authority (FCA).
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. It said the charges for those who go into the red without agreement can be high and complex.
It said new rules limiting payday loans were having a positive effect, however. Earlier this month, the UK's largest lender, Lloyds, said it was getting rid of unarranged overdraft fees altogether from November.
Therefore the pay-day loan cap would be kept in place and reviewed in 2020. Barclays has already stopped all unauthorised lending.
The FCA called for fundamental changes to the way banks charged customers going unexpectedly into the red. However, other banks charge about £6 a day, or up to £90 a month.
"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. "We believe there is a case to consider fundamental reform of unarranged overdrafts, and whether they should have a place in any modern banking market," the FCA said, in its review into the high-cost credit market.
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. "Maintaining the status quo is not an option," said FCA chief executive Andrew Bailey. Unarranged overdraft fees were often "significantly higher" than payday loans, he added.
"We are now working to resolve these issues while preserving the parts of the market that consumers find useful." The FCA has also highlighted concerns about the rent-to-own market, typically used by consumers to buy fridges, freezers and televisions.
However, the FCA said that regulation of high-cost short-term credit, known as payday lending, had delivered "substantial benefits" to consumers. "We think that is a sizeable issue, because people are paying three or four times more than if they used cash," Mr Bailey told the BBC.
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. The FCA said that one option might be for housing associations to provide such goods instead.
Mr Bailey said there were also concerns about motor finance, a worry already highlighted by the Bank of England.
"We're looking at affordability tests and the transparency of terms," he said.
The FCA will publish an update on this work in the first quarter of 2018.
Payday loans
As part of its review into high-cost lending, the FCA also looked at how the cap on payday loans was working.
It said that the cap, first imposed in January 2015, had delivered "substantial benefits" to consumers.
Since then, no one has had to pay more than 0.8% a day of the amount borrowed. The maximum they pay is no more than twice the amount they borrowed.
The FCA said its review found that the cap meant 760,000 borrowers in this market were saving a total of £150m a year, that companies were now less likely to lend to customers who cannot afford to repay, and debt charities were seeing fewer people struggling with ballooning borrowing from payday loans.
Mr Bailey said the FCA would continue to focus its efforts on what else needed to be done in this area.
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