Laura Suter, personal finance analyst at investment platform AJ Bell, comments on the FCA’s proposals to cut overdraft charges:
“Banks will be forced to stop charging rip-off fees for overdrafts under these new plans from the regulator. Rather than having an array of charges, which can be per transaction, week or month of being overdrawn and a percentage of the amount borrowed, borrowers will have an easier-to-understand interest rate to help them know how much borrowing will actually cost.
“Unarranged overdrafts are often too easy for people to fall into, with around 19 million people using them each year, and they can then face charges more than 10 times higher than payday loans. Someone with a £100 unarranged overdraft at the moment can pay £5 a day in charges, and the FCA plans to reduce this to just 20p a day.
“The FCA’s moves to cut the costs of unarranged borrowing and for banks to target those who are constantly in their overdraft should be welcomed. The regulator’s threat of a future price cap in the sector if banks fail to reform is presumably intended to make banks sit up and take action now, rather than face tougher measures in the future.
“Brits have around £6.5bn outstanding in overdraft borrowing* but this has fallen dramatically over the past decade, as people increasingly shift their debt to credit cards. So while these proposals will help those in persistent overdraft debt, it is by no means a silver bullet to stop the UK’s costly debt problems.”
*According to UK Finance figures.