Overdrafts poor value, says FCA

Overdraft terms set by lenders are "complex and opaque", the Financial Conduct Authority (FCA) has said.

During a consumer credit market investigation, the regulator found that overdrafts are poor value for money and that many customers struggle to understand the costs.

The research reveals that:

  • Many people are unaware of the potential costs of overdrafts
  • Many are confused by unarranged overdrafts
  • Many customers do not see arranged overdrafts as borrowing and instead treat them as income
  • There may be incentives for firms to increase revenue by using overdrafts.

The FCA will launch a follow-up investigation to examine how lenders set their overdraft limits. The regulator will also look into making some voluntary measures mandatory in the autumn.

Quote by Nigel Holland:

“ The banking market is extremely large and there are approximately 30 million bank current accounts. Overdraft facilities can be applied for when  needed. Not all of these facilities will be approved by the banks but it is important that the system works for consumers.

The investigation into the credit market is a welcome first step towards putting the consumers back in charge of their own credit. The more competition which is found in the credit market will mean a better deal becomes available for the public.”