City regulator bans high overdraft fees to reform 'dysfunctional' market

Willing2Learn

Source: The Guardian

Vulnerable consumers are disproportionately hit by excessive charges, says FCA.

The City regulator has accused UK banks of causing “significant harm” to their most vulnerable customers as it pushes ahead with a ban on excessive overdraft fees.

The Financial Conduct Authority (FCA) said it would stop the practice of high street banks imposing higher penalties for unarranged overdrafts than for agreed overdrafts, among a number of new rules announced on Friday.

Fees for unarranged overdrafts are more than 10 times higher in some cases than those charged by payday lenders, the FCA said.

It expects the changes, first proposed in December, to make daily charges for borrowing through an unarranged overdraft more than 25 times cheaper. The typical cost of borrowing £100 through an unarranged overdraft is expected to plunge from £5 a day to less than 20p a day.

colsten

MSE beat you this time with a thread on the subject: https://forums.moneysavingexpert.com/discussion/6010476/fixed-daily-and-monthly-overdraft-fees-to-be-banned-mse-news

stclair

No doubt in the end free banking will disappear.

eDicky

Yes, with banks being expected to support those irresponsible enough to go into unarranged overdrafts or let themselves be scammed by fraudsters despite all the warnings, pretty soon we can kiss goodbye to fee-free banking.

colsten

eDicky wrote: »

Yes, with banks being expected to support those irresponsible enough to go into unarranged overdrafts or let themselves be scammed by fraudsters despite all the warnings, pretty soon we can kiss goodbye to fee-free banking.

As much as I do like free banking, I do have to admit that we get this, at least partially, courtesy of those paying all those overdraft fees. So to some extent, we are no better than those 'evil' bankers, aren't we?

EssexExile

Will the result of this be that you won't be allowed to go into the red if you don't have prior authority?

SnowTiger

EssexExile wrote: »

Will the result of this be that you won't be allowed to go into the red if you don't have prior authority?

Banks may be more reluctant to provide unarranged overdrafts. We'll have to wait and see.

Rejected payments, for example direct debits, could lead to customers being charged elsewhere. Many credit card companies will charge punters £12 for a returned or late payment.

deadendwaterfall

SnowTiger wrote: »

Banks may be more reluctant to provide unarranged overdrafts. We'll have to wait and see.

Rejected payments, for example direct debits, could lead to customers being charged elsewhere. Many credit card companies will charge punters £12 for a returned or late payment.

I would have thought that banks would still be forced to provide unarranged overdrafts for when a payment is guaranteed, for example, if an offline payment is made where a customer doesn't have sufficient funds, then the payment is processed days later? Or could this mean the end of offline payments like when offline contactless payments were banned?

SnowTiger

deadendwaterfall wrote: »

I would have thought that banks would still be forced to provide unarranged overdrafts for when a payment is guaranteed, for example, if an offline payment is made where a customer doesn't have sufficient funds, then the payment is processed days later? Or could this mean the end of offline payments like when offline contactless payments were banned?

What type of payments are you thinking of?

Chip'n'PIN? If a merchant hasn't received an authorisation code a transaction isn't guaranteed.

eskbanker

Willing2Learn wrote: »

City regulator bans high overdraft fees to reform 'dysfunctional' market

The Guardian's sub-editors are being a tad disingenuous with that choice of headline - the regulator isn't banning high overdraft fees!

The regulator is banning the use of differential rates between arranged and unarranged overdrafts but stops short of actually imposing any sort of price cap, so there's nothing in these new measures that prevents harmonisation to the higher rate rather than the lower one.

Likewise, banning per-day charges and fixed fees for having a facility don't directly mean a cost reduction, if banks choose to wrap up such costs into higher APRs, so the FCA measures are all about how overdraft costs are structured and presented rather than their overall level.

It's not unreasonable to anticipate that market forces will take effect to prevent banks from stepping significantly out of line with their competitors, but that's not the same as regulator action keeping fees down, so it's not clear to me the basis on which the FCA chief executive claims "Following our changes we expect the typical cost of borrowing £100 through an unarranged overdraft to drop from £5 a day to less than 20 pence a day".

https://www.fca.org.uk/news/press-releases/fca-confirms-biggest-shake-up-overdraft-market has the unspun version of the story....

deadendwaterfall

SnowTiger wrote: »

What type of payments are you thinking of?

Chip'n'PIN? If a merchant hasn't received an authorisation code a transaction isn't guaranteed.

Yes, C&P, such as purchasing tickets or refreshments onboard a train where there's no mobile signal.