The Financial Conduct Authority (FCA) are consulting on changes in the high cost credit market following an in-depth review. The organisation has announced new proposals designed to protect millions of people using overdrafts and high cost credit.
Andrew Bailey, Chief Executive of the Financial Conduct Authority said:
“High-cost credit is used by over three million consumers in the UK, some of who are the most vulnerable in society. Today we have proposed a significant package of reforms to ensure they are better protected including the possibility of a cap on rent-to-own lending.”
“The proposals will benefit overdraft and high-cost credit users, rebalancing in the favour of the customer.”
“Our immediate proposed changes will make overdraft costs more transparent and prevent people unintentionally dipping in to an overdraft in the first place. However, we believe more fundamental change is needed in the way banks charge customers for overdrafts. Given the size of the market our work here will be completed as part of our wider review into retail banking.”
In the review published today the FCA stated it believes that the way banks operate and charge for overdrafts needs fundamental reform. ‘’In 2016 firms made an estimated £2.3 billion in revenue from overdrafts; 30 per cent of this was from unarranged overdrafts. The majority of unarranged overdraft charges are paid by only 1.5% of customers, who pay around £450 per year in fees and charges.
The FCA is putting forward some immediate proposals today for overdrafts that it believes will save customers up to £140 million a year. Beyond that, the FCA will consider more radical options to ban fixed fees and end the distinctions around unarranged overdraft prices.
The full review can be viewed on the FCA website.