Credit Cards & Loans
FCA: Consumers ‘paying too much for overdrafts’
Bank customers are paying too much for their overdrafts, new research by the city regulator has found.
The Financial Conduct Authority (FCA) said the terms set by banks can be so complex and opaque that “even the most astute consumer could struggle to understand what they are paying for”.
It added that consumers do not tend to consider overdrafts when deciding on a current account so there is little pressure on banks to provide good value rates.
The FCA said it will investigate how banks set and monitor overdraft limits along with their governance and strategies for doing so.
It will also consider making some voluntary measures mandatory to make the £8bn overdraft market more consumer-friendly.
Christopher Woolard, director of policy, risk and research at the FCA said: “Just about everybody who banks can have access to some sort of overdraft facility – whether they’ve signed up for it or not. The sheer size of this market is huge, and with overdrafts bolted on to over 30 million UK current accounts, we want to make sure it is working well for consumers.”
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While many banks claim that overdrafts subsidise ‘free’ current accounts, the FCA believes the situation is more complex. For example, there is evidence that personal current accounts help banks sell more profitable products to their customers.
Recent measures agreed between the industry, the Office of Fair Trading and the government – including text alerts- have improved the situation for consumers, the FCA found.
However, it said unarranged overdrafts still carry high charges and opaque terms.