Banks facing crackdown on rip-off overdraft fees

But there’s STILL no cap on charges

‘Consumers trapped in debt’

RIP-OFF bank charges for accidentally slipping into the red could be banned under a major crackdown on expensive borrowing.

The City watchdog yesterday announced new rules that it claims should save borrowers hundreds of millions a year in unauthorised overdraft fees.

But campaigners criticised the Financial Conduct Authority (FCA) for failing to impose an immediate cap on the charges after a wide-ranging review.

The body also proposed reforms on rent-to- own operators, doorstep lending and catalogue credit and store cards. Around 13million Britons use unarranged overdrafts and in the worst cases pay up to £450 a year in fees.

New measures mean banks will have to send customers text message alerts when they go into their overdraft, be clearer about fees when people open accounts and offer online tools that explain charges more clearly.

The FCA says these proposals are expected to save customers up to £140 million a year. But folrently, lowing a Money Mail campaign, the regulator said it is also considering ‘radical’ measures such as banning daily fixed fees in favour of interest rates and introducing an overall price cap.

These could be announced in December as part of a wider review of the banking sector.

But Gareth Shaw, money expert at Which?, accused the FCA of ‘dragging its heels’ over capping overdraft fees, adding: ‘It’s wrong that the regulator continues to delay taking action, leaving consumers affected by this unfair practice trapped in debt.’ Cur- if customers exceed an agreed overdraft limit they are typically charged a set fee of between £5 and £10 per day, meaning they pay the same charges regardless of how much they go over their agreed limits.

Customers typically pay between 0.1 per cent and 0.5 per cent per day in interest for an agreed overdraft but this soars to more than 10 per cent when it is unauthorised. In total, banks rake in around £2.3billion a year in overdraft charges.

Following an 18-month review of the high-cost credit industry, the FCA is also consulting on a price cap on rent-to-own sales of items such as sofas and white goods.

Around 400,000 vulnerable customers use these loans to spread the cost over as long as three years and are charged interest. Research shows that in some case customers are paying six times the retail price of an item, such as £1,500 for a £300 washing machine.

The cap, which has not yet been set, is expected to come into force by next April. The FCA has also warned doorstep lenders that they must obtain permission from their customers every time they want to offer them a new loan.

But it stopped short of introducing a full cap on this type of lending, which 1.6 million people use to make ends meet

Catalogue and store card providers will also have to do more to identify customers who are struggling with their debt and refrain from offering credit limit increases to those in difficulty. Bounced direct debit charges of up to £25 will not be included in any cap. The crackdown comes after a 12year campaign by Money Mail, which in 2006 exposed the huge profits banks raked in by charging hefty fees for small slip-ups.

Martin Lewis, found of MoneySavingExpert.com, said: ‘The current regulation is farcical. While the FCA is thankfully considering capping rent-to- own costs, the rules should apply to all forms of short-term lending.’

Andrew Bailey, chief executive of the FCA, said: ‘The proposals will benefit overdraft and high- cost credit users, rebalancing in the favour of the customer. ’

Eric Leenders, of trade body UK Finance, said the banks will ‘work closely with the FCA to make overdrafts more transparent’.

FOR more than a decade, MoneyMail has campaigned passionately to end the exorbitant interest rates charged by banks when customers accidentally slip into an unauthorised overdraft.

So we welcome the Financial Conduct Authority’s announcement yesterday of a range of rules that should save borrowers around £150million a year.

But although banks will now have to warn customers when they are about to go overdrawn and be clearer about charges, the watchdog stopped short of a cap on overdraft charges. Neither has there been any action to tackle sky-high credit card rates.

With household debt hitting a record £210billion last month – £71billion on credit cards alone – a time bomb is ticking which could wreck our economic recovery. A rate cap wouldn’t solve the problem, but it might help prevent the sort of crash we suffered ten years ago.