Crackdown on rip-off overdraft fees

BANKS are facing a crackdown on rip-off overdraft fees to protect customers who accidentally fall a few pence into the red, the City watchdog warned yesterday.

Lenders have long been criticised for hitting customers with huge charges if they dip into an unarranged overdraft – with bills in some cases reaching £90 a month.

Customers can be hit by fees as high as £8 a day even if they have gone over set limits by less than £1, which critics say can easily happen by mistake.

The Financial Conduct Authority (FCA) is now taking aim at costs which apparently have little to do with how far spenders stray beyond their agreed limit.

The watchdog’s competition head Christopher Woolard said: ‘There appears to be no clear relationship between the amount borrowed by the consumers and the amount charged by the firm.

‘Based on our early findings, we believe that there is a case to consider fundamental reform of unarranged overdrafts.’

The FCA said it was still gathering evidence, but was minded to limit fees unless there were unintended consequences or knock- on effects. Mr Woolard said: ‘We won’t shy away from taking action if we deem it necessary.’

It comes just days after the Bank of England said customers were stretching their incomes to borrow for a mortgage.

More than a quarter of buyers are borrowing more than four times their annual income as the long boom in housing forces them to take ever-greater risks. This is the highest figure on record and double the proportion just eight years ago.