Subtle FCA note will be welcome relief to those hurt by overdraft hikes - MSE News

Former_MSE_Naomi

The financial regulator has warned that banks must act to help consumers hurt by changes to overdraft costs, after several providers announced they'll be introducing interest rates of 40%...

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'Subtle FCA note will be welcome relief to those hurt by overdraft hikes, says Martin Lewis'

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eskbanker

The actual letter written to the banks is published at https://www.fca.org.uk/publication/correspondence/overdraft-pricing-letter-firms.pdf and, after requesting details of how banks set their rates, includes a key sentence "For the avoidance of doubt, we note that we are requesting the material above voluntarily."

Perhaps the subtlety is going right over my head but I don't read any actual "warn[ing] that banks must act to help consumers hurt by changes to overdraft costs" as suggested by MSE, but simply a restatement of the existing rules: "We wish to underscore that our rules require you to take measures to help and support those customers who are worse off because of these changes."

Edit: just to add, I do agree that on the face of it there does seem to be a case to answer that there may have been some form of collusion in setting the rates, given the similarities between rates set by supposedly independent organisations, so to me that's what the FCA are primarily going after here, which obviously could ultimately benefit customers, but investigations into anti-competitive practices are rarely swift....

Consumerist

It seems to me that the banks' motivation is pretty clear: to make the same huge revenues from overdrafts as before whilst following the new regulations.

I smell the end of "free" in-credit banking on the (distant) horizon.

BankMan

Is there any wonder the banks have been forced by the FCA to charge huge interest rates on overdrafts? Unauthorised overdrafts represent highly risky lending for the banks and whilst I appreciate some vulnerable people find themselves in this situation there are plenty of more affluent people that take advantage and walk away from their debts.
Suppose I get caught walking out of Tesco with a trolley of groceries having not paid. Is it a defence if I tell the security guard that it’s a bit like an unauthorised overdraft - I might pop back in a couple of weeks and pay (or I might not)? What is the difference?

born_again

FCA are quickly becoming a laughing stock.. They had the right to set a limit on the interest rates. But decided to leave it to the banks to set their own.
It was clear as soon as the 1st jumped and set a rate. ALL would follow with a rate around that point. Lets face it. It is a no brainier to do so.
We are told only a low % of customers will be worse off.
But as we are now finding out banks are going to stop people from going over their limit (at last) and as such, while the bank won't get a nice earner out of it. A lot of companies will on bounced DD's etc.
Wonder if the FCA will target them next over the extortionate charge for these. That they told the banks they can not charge...

Consumerist

BankMan wrote: »

. . . Unauthorised overdrafts represent highly risky lending for the banks . . .

I'm not sure that unauthorised overdrafts are much more risky than authorised overdrafts.

The banks could have, and probably should have, refused to make payments which would take customers into unauthorised overdraft. Instead they saw an opportunity to make a killing with no regard for making matters worse for the customer.

In the long run, refusing payments will force customers to manage their money better and help reduce the mounting personal debt in this country.

It is the transition period which is going to be difficult and the FCA is expecting the banks to help out...It remains to be seen whether they do so in any meaningful way. I suspect that more than a few credit files are going to be trashed over the coming months but seems to me that it may be necessary for the longer term.

born_again

Consumerist wrote: »

The banks could have, and probably should have, refused to make payments which would take customers into unauthorised overdraft. Instead they saw an opportunity to make a killing with no regard for making matters worse for the customer.
.

You also have to remember that there was a change in the way the timing of the balance was calculated. It used to be at the end of the banking day 16:30. Then banking became more of a 24/7 process with the increase of internet & app based banking. So the end of the banking day became later, 23:55 in some cases.
So some people would know they would not have enough funds at the start of the day, but would transfer them over later in the day to avoid charges. When they knew the amount they were over.

TBH. I have always though that anything over your account limit should be declined. But others think it is good customer service to allow customers flexibility.

SnowTiger

Consumerist wrote: »

I smell the end of "free" in-credit banking on the (distant) horizon.

That's been mooted for decades.

FT, 2006:

Nationwide, the country’s biggest building society, said the UK was “moving towards the end of free banking”, although it had no current plans to start charging customers.

Philip Williamson, chief executive, said moves by regulators such as the Office of Fair Trading to “fiddle around” with pricing mechanisms in areas such as current accounts represented a fundamental market shift.

[...]

Mr Williamson said he believed house prices would rise by 5 to 6 per cent in 2007.

The Independent, 2015:

Banks may start charging UK customers to hold current accounts within the next five years.

That's the view of Steve Davies, head of retail and commercial banking at PwC, who said that free bank accounts will soon be a thing of the past as banks move customers into package deals, where customers pay for the things that are added onto the account, to charging monthly.

"We are all paying for current accounts anyway," Davies said. "But are there going to be direct charges? Yes. It’s already happening."

Which?, 2013:

Some analysts have raised concerns that [making it easier to compare fees charged by banks] on a Europe-wide basis could lead to UK banks charging for services like cash machine withdrawals in order to avoid being undercut on others. Customers in the UK already pay for access to current accounts through forgone interest and fees for overseas card use, as well as through overdraft fees.

The Telegraph, 2014:

The end of free banking for customers is probably only a matter of time, with direct charges for current accounts almost inevitable, according to the chief executive of the Royal Bank of Scotland.

In an interview with The Telegraph, Ross McEwan warned that the end of free-if-in-credit banking was coming as it would lead to greater transparency about how banks funded themselves.

This is Money, 2006:

First Direct, the online arm of HSBC, will start charging some customers a £10 monthly fee, as well as overdraft arrangement fees, in what could be the first step towards the end of free banking for all.

Then: MSE, 2019:

First Direct is getting rid of the £10/month fee on its popular 1st Account current account next month.

I understand the theory. Free banking isn't really free, for example punters are losing out by not earning interest on their in-credit balances.

It didn't work out well for Santander.

MSE, 2020:

[Saint] Martin Lewis says Santander 123 is now a dead duck current account as it cuts interest and cashback

The Times, 2011:

The era of “free” banking is coming to an end, with banks now offering the best interest rates and deals on accounts that carry fees.

The average interest paid on a fee-charging account that is kept in credit is now 0.56% a year, against 0.34% for accounts with no fees, said Defaqto, the data firm.

boo_star

Perhaps Mr Lewis should stop sticking his nose in where it isn't wanted.

He won't get, what I assume to be his ultimate desire, which is free banking for everyone and (nearly) free borrowing. He'll just end up with the banks having an excuse to charge everyone and the poor will still be poor.

Give it up Martin, for the love of God. You lost this one back in the noughties, it's time to move on.

Consumerist

SnowTiger wrote: »

That's been mooted for decades.

Well, of course, no bank wants to be the first to introduce a change to the way banking services are paid for so it will probably take regulation to impose any change on all banks together.

Now that the banks have effectively given the regulator the two-finger salute, there may be some motivation for the regulator to show its gums and make another complete dogs dinner of regulating bank charges..