West Lancashire MP Rosie Cooper has welcomed proposals to ban banks from charging rip-off unarranged overdraft fees that regularly penalised the most vulnerable customers and cost some people thousands of pounds a year.
MP Rosie joined with consumer champion Which? and over 80 fellow parliamentarians in May in signing a letter calling on the Financial Conduct Authority to bring an end to these excessive charges. Which? has been campaigning on this issue for years and welcomes today’s strong action from the regulator.
The FCA announced that banks will no longer be able to charge higher prices for people who go over their arranged overdraft limit, in radical new proposals set down by the UK’s financial watchdog.
Rosie Cooper MP said:
“We often hear of strict regulation for payday lenders and cracking down on loansharks when the reality is, as the research indicates, much debt and stress can be caused by our high street banks.
“Overdraft fees can be the first step in spiralling into a vicious debt circle which can lead people to resort to credit cards, payday lenders and worse. We need our banks to be responsible and support customers to climb out of debt not increase it.
“I very much welcome this announcement from the Financial Conduct Authority that banks will no longer be able to charge higher prices for people who go over their arranged overdraft limit.”
Jenni Allen, Managing Director, Which? Money, said:
“Finally, banks will no longer be able to charge rip-off unarranged overdraft charges, which have long penalised their customers, many of whom can afford it the least.
“Which? has campaigned on this issue for years and this strong action from the regulator will come as a massive relief for all those regularly hit with such extortionate charges, which cost some people thousands a year.
“The regulator must now ensure these important changes are swiftly introduced and enforced to finally stop this unfair practice and put an end to these excessive fees.”
Under the new proposals, the FCA plans to:
- Stop firms from charging higher prices when customers use an unarranged overdraft
- Simplify overdraft pricing so that arranged overdrafts are priced using a single interest rate on each account
- Standardising the presentation of arranged overdraft prices so that they are easier to compare and requiring a representative annual percentage rate (APR) in certain advertising for arranged overdrafts
Figures from the FCA show:
- In 2017, firms made over £2.4bn from overdrafts alone, with around 30% from unarranged overdrafts.
- More than 50% of banks’ unarranged overdraft fees came from just 1.5% of customers in 2016.
- In some cases unarranged overdraft fees can be more than ten times as high as fees for payday loans.
- People living in deprived areas are more likely to be impacted by these fees