Banks must warn on overdrafts
Rules coming into force today will require banks to send a text or message through mobile banking apps to warn users that they’re dangerously close to stepping into an overdraft.
They will need to implement other measures such as allowing customers a ‘grace period’ so that they can transfer money into the account to avoid charges.
The measure, implemented by the Competition and Markets Authority (CMA) applies to all banks with more than 150,000 active current accounts.
However, the latest step to curb overdraft fees only applies to new customers from today; it will be rolled out to existing bank customers over the coming month.
The CMA said a number of banks have already adopted this warning alert scheme.
It comes as its retail banking investigation revealed that banks receive around £1.2bn a year from unarranged overdraft charges. The Financial Conduct Authority found that by signing up to text alerts and using mobile banking, it can help reduce monthly unarranged overdraft charges by 24% on average – around £11 per year for each customer.
It builds on an earlier policy requiring banks to publicly announce their maximum monthly charges.
Adam Land, senior director at the CMA, said: “People will now be told when they are about to slip into overdraft, which could help them avoid potentially costly charges. And the changes we are requiring from today make it easier for small firms to switch to another bank for their current account or to obtain a loan.”