The Financial Conduct Authority (FCA) has confirmed it will introduce new rules in April 2020 that will make the overdraft fees simpler for users.
According to the new rules, overdraft users can only be charged a simple annual interest rate. Therefore, no additional daily or monthly fees can be added.
As a result of this, according to the FCA, seven out of ten overdraft users will be better off or see no change in cost.
‘Our changes expose the true cost of an overdraft. We have eliminated high prices for unarranged overdrafts.
‘This will result in a fairer distribution of charges, helping vulnerable consumers, who were disproportionately hit by high unarranged overdraft charges, and many people who use their overdraft from time-to-time.’Christopher Woolard, Executive Director of Strategy and Competition at the FCA, commented on the issue.
In response, many banks have boosted the interest rates they charge on overdrafts. Several of the largest providers are introducing rates of up to 40%.
The FCA has sent a letter to the providers asking them to explain what influenced their decision. Also, they asked how the banks will deal with any customers who could be worse off following the changes.
It said some firms could reduce or waive interest for customers who are in financial difficulty because of their overdraft.
‘These changes will make bank overdraft fees much easier to understand.’Nigel Holland commented.