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UK watchdog sets out concerns over high overdraft fees

The Financial Conduct Authority has warned banks and other lenders it is concerned about fees they charge customers for unauthorised overdrafts.
The regulator said charges for unauthorised overdrafts on current accounts were high, particularly when set against the small sums of money borrowed. It said it was prepared to intervene to improve the market for high-cost credit.

The FCA said it had looked at transactions for 1.5m personal current accounts. Lenders earn more from arranged overdrafts but "the proportion of revenues from unarranged overdrafts is significantly higher when compared to the amounts lent". More than half of total charges for unarranged overdrafts affected just 2% of accounts, it added.

"The FCA remains concerned about the high fees and charges for unarranged overdrafts, especially when compared to the relatively small amounts lent," it said.

The City watchdog said it would carry out further work on overdrafts and that it would be included in its examination of retail banking business models.

The warning on overdrafts was included in an update on the FCA's review of high-cost credit. The review also covers rent-to-own retailers, home-collected credit and credit for purchases from catalogues.

The FCA has already cracked down on rent-to-own and home credit operators. In October 2017 it ordered BrightHouse to repay £14.8m to 249,000 vulnerable customers who had taken out purchase plans for washing machines, televisions and other household goods. The regulator is also investigating Provident Financial's treatment of customers at its Vanquis and Moneybarn businesses.

Christopher Woolard, the FCA's executive director of strategy and competition, said: "High-cost credit products remain a key focus for us. We have already taken significant steps to address the risk they pose to potentially vulnerable consumers. This review and the analysis we have conducted so far give an emerging picture of the need to intervene in some parts of the market."

He said the FCA needed to take into account the social purpose of providing loans to people who cannot get them elsewhere. It wants to encourage other forms of credit for these customers as well as stepping into the market.