The great overdraft RIP-OFF
Watchdog under fire as new rules leave 8m borrowers worse off
The City watchdog is facing a furious backlash after it emerged that millions of borrowers will be worse off following a change to overdraft rules.
The Financial Conduct Authority has ordered banks to scrap unarranged overdraft fees and charge all customers who slip into the red the same.
Lloyds Banking Group, which includes halifax, is the latest lender to reveal its fee structure, saying borrowers will pay up to 49.9pc. The figure – close to twice the average credit card rate and more than many payday loans – was branded ‘ludicrous’ by critics.
The FCA – whose chief executive Andrew Bailey ( pictured) is about to take over as governor of the Bank of england – has admitted that three in ten overdraft users will pay more under the rules.
With 26m customers using overdrafts, nearly 8m will lose out.
The FCA insisted all 14m of those with unarranged overdrafts will pay less.
But that means the burden will fall on more responsible borrowers who previously had an agreement in place with their bank.
Laura Suter, personal finance analyst at broker AJ Bell, said: ‘If you’re someone who is consistently in your arranged overdraft you could find the bill for your interest is far higher than before.’
Not all borrowers with an arranged overdraft will suffer.
According to the FCA, the fee for borrowing £500 for 30 days via an arranged overdraft on Santander’s everyday Current Account is falling from £30 to £14.01, saving the customer £15.99. By contrast, the cost of the same overdraft on the Nationwide FlexAccount is rising from £7.17 to £13.99, losing the customer £6.82.
Sarah Coles, personal finance analyst at investment platform hargreaves Lansdown, said: ‘Borrowers with large, arranged overdrafts, are already paying through the nose for their borrowing, but the new rules could see their rates double. It’s going to be very difficult to persuade them that the FCA’s overdraft reforms are good news for borrowers.’ The row is an embarrassment for Bailey just weeks before he succeeds Mark Carney at the Bank of england.
On his watch, the FCA last year said that from April 6 overdrafts should be simpler, fairer and easier to manage. It also ordered banks to stop charging higher prices for unarranged overdrafts than for arranged overdrafts.
The intervention came after lenders made more than £2.4bn from overdraft fees and charges in 2017, with around 30pc coming from unauthorised overdrafts.
In response, banks have introduced fee structures that will punish millions. Nationwide, Santander, hSBC, and TSB announced rises of up to 39.9pc. NatWest will charge up to 39.49pc, and Barclays 35pc. Lloyds has also said it will charge 39.9pc, but customers considered risky will be charged 49.9pc. Lloyds insists 90pc of customers will pay less under the new model. Its Club Lloyds customers will pay 27.5pc.
Those that are charged more will see an average monthly increase of £1.89 and no one will pay more than £10 a month extra. But experts argue Lloyds’ rates are already expensive. Salman haqqi, personal finance editor at comparison site money.co.uk, said: ‘ While the new FCA overdraft rules are set to make seven out of ten people better off or see no change, we mustn’t forget the other third of people who are going to end up paying the price because they rely on their overdraft to make ends meet.’
An FCA spokesman: ‘ Our reforms are fixing a market where too often the vulnerable were missing out because of complex and disproportionate charges, especially for unarranged borrowing. Our changes will ensure overdrafts are simpler, fairer and easier to manage. The majority of people will be better off or see no change.’