Pressure on household finances

New overdraft rules come into force from today, which mean firms can only charge one single annual interest rate for both arranged and unarranged borrowing.

The changes were announced by the Financial Conduct Authority (FCA) long before the coronavirus outbreak put many households’ finances under pressure.

Many overdraft providers had pegged their new single overdraft rates at around 40 per cent – which is around double the rate some borrowers had previously been paying to use their arranged overdraft.

However, as part of stop-gap measures to help cushion the financial impact of coronavirus on their customers, some providers are temporarily freezing rates at lower levels or rolling them back down to what they had been before they were increased.

Many providers are also ramping up their zero-interest overdraft buffers, so borrowers may not pay anything in the short-term.

For example, HSBC UK is temporarily halving its new 39.9 per cent overdraft rate, taking it back down to 19.9 per cent.

From April 9 for a threemonth period, HSBC UK will also automatically increase its temporary interest-free buffer for millions of Bank Account and Advance Account overdraft customers to £500.

Natwest has frozen overdraft interest at current rates for personal customers for at least three months.

The temporary relief available for overdraft customers affected by the coronavirus outbreak varies between providers.

But the FCA proposed last weekthatablanketzero-interest buffer of £500 should be introduced across providers, for up to three months, on people’s main accounts.

The proposal is being consulted on – but if agreed it could be in place by Thursday.

In the meantime, the new industry rules coming into force from today aim to make overdraft pricing simpler and fairer, reducing the burden on some people who have previously been paying high charges.

Firms will need to charge a simple annual interest rate – without any additional fees and charges for using an overdraft.

The new rules will particularly help people who have paid high charges in the past for going into an unarranged overdraft.

The FCA previously found that unarranged overdraft fees are often ten times as high as charges for payday loans and fall disproportionately on vulnerable consumers.

The regulator’s calculations suggested the cost of borrowing £100 through an unarranged overdraft would fall from a typical £5 per day to under 10p per day.

It also said in January that it expects firms to help people who borrow large amounts within their arranged overdraft, which could include reducing or waiving interest or agreeing a repayment programme.

Gareth Shaw, head of money at Which?, said: “These important changes will give consumers more clarity about their finances and should help them make informed spending decisions.

“It is right that banks are now working with the regulator to provide further help for customers who may need to use an overdraft facility to help manage their finances during the coronavirus outbreak.

“The FCA must keep a close eye on developments in this area, including competitive pricing, to ensure that its transformation of current account overdrafts delivers for customers.”

Here is a round-up of what major providers have already announced about their new overdraft rates and the measures put in place for giving temporary relief to borrowers affected by coronavirus:

New rate: Nationwide introduced a 39.9 per cent rate in November 2019. Overdraft relief: The Society will not charge overdraft interest from April 20 until July 1 for those financially affected by coronavirus. Customers can request a fee-free overdraft interest holiday by completing an online form. Nationwide will email or text to acknowledge requests.

New rate: The majority of customers will pay 39.9 per cent (29.9 per cent for Club Lloyds). As the group takes a “riskbased” approach to overdrafts, some customers will pay 49.9 per cent.

Overdraft relief: All customers will be able to have a £300 interest-free buffer from April 6 to July 6. As a result of this, Lloyds said all its overdraft customers would pay less from April 6. It said 90 per cent of customers would have paid less for their overdraft even if the £300 buffer across its accounts was not introduced.

New rate: A rate of 35 per cent took effect on March 22. Overdraft relief: Barclays is waiving all overdraft interest from March 27 until the end of April 2020, meaning no charges for customers to use their agreed overdraft. Interest will automatically be removed.

Barclays is reviewing measures after this date and will be communicating with customers shortly.

New rate: HSBC imposed a new rate of 39.9 per cent on March 14. But it is now temporarily reducing the rate charged above its interest-free buffer to 19.9 per cent. Overdraft relief: Alongside the rate reduction, HSBC said that, from April 9, for a three-month period, it will increase the temporary interest-free buffer for millions of Bank Account and Advance Account overdraft customers from £300 to £500.

New rate: A rate of 39.49 per cent would have been introduced on April 1 for Natwest customers, and on March 30 for RBS and Ulster Bank customers. But customers will continue to pay their current rateofinterestforatleastthree months, meaning a maximum of 19.89 per cent across arranged and unarranged borrowing.

Overdraft relief: As well as the rate freeze, the bank has also removed all other overdraft fees and charges, so all customers who use their overdraft for the three months from March 30 will pay less.

New rate: Santander previously announced it will be 39.9 per cent from April 6, however it plans to make a further statement in due course. Overdraft relief: Santander previously announced a £350 interest-free overdraft buffer for three months from April 6. This means it will automatically waive interest on up to £350 of any agreed overdraft limit.

Santander said last week: “We will be reviewing the FCA proposals as a matter of priority and will be announcing new measures to help our customers as soon as possible.”

New rate: Arateof35.9per cent was due to come into force on April 4 – but this has been delayed until July 3. Overdraft relief: Customers with an existing arranged overdraft will have the interest waived on up to £500 of arranged overdraft use until July 3.

New rate: TSB previously announced a rate of 39.9 per cent.

Overdraft relief: TSB has introduced measures including fees waivers or implementing an interest freeze on their overdraft.

It is looking to make changes to align with FCA’S guidance, effective by April 9.

The TUC has today called for an “emergency” boost to Universal Credit to help people get through the coronavirus outbreak.

The union body says that without an urgent increase, unemployment support will be lower in real terms during the coronavirus outbreak than during the mass unemployment peaks of the 1980s and 1990s.

The report says that with unemployment set to rise sharply as a result of coronavirus hitting businesses and the economy, more support is needed to help those who lose their jobs.

Unemployment support in the UK compares poorly with other European countries, where benefits are paid as a proportion of previous earnings, ranging from 60 per cent in Germany to 90 per cent in Denmark.

The union said that in the