Banks’ big profit crunch as watchdog curbs fees

After credit cards crackdown, war on overdraft charges may cost billions

BANKS could face a fresh multi-billion pound hit to their profits under a planned crackdown on overdraft charges.

The Financial Conduct Authority is aiming to take action to impose limits on overdraft fees and other high-cost credit.

Last week the FCA unveiled plans to force banks to cut interest charges on credit cards – particularly for those borrowers having the greatest difficulty repaying their debts.

This weekend FCA chief executive Andrew Bailey told The Mail on Sunday that the next steps could involve curbs on overdraft costs which would have an even more far-reaching effect on bank profits.

Bailey added: ‘If you look across the board at these interventions, they will cause downward pressure on bank margins.’

Banks make almost £9billion every year from personal current accounts, including overdraft fees and payment processing charges.

No estimates have yet been made of the potential costs of a fresh crackdown on bank charges, but an FCA spokesman said steps to target overdraft fees and other high-cost credit ‘cover a much wider area’ than the credit card moves.

The regulator is considering taking action to cut fees charged to customers who go overdrawn without approval and to ensure they are given clearer warnings of imminent charges.

The plans are part of a broad offensive aimed at preventing banks from profiteering at the expense of those who get into trouble with debt.

Rising consumer borrowing is a growing concern of both the FCA and the Bank of England. Consumer credit is soaring by more than 10 per cent a year. At the same time the rate at which people are saving has slumped to its lowest since the eve of the financial crisis in 2008.

The crackdowns follow research by the regulator showing that banks make the vast bulk of their profits from borrowers in difficulty. They make almost five times as much in fees from

credit card customers in serious arrears as they do from those with no problems.

Last week’s measures included a requirement to introduce repayment plans for those who do not repay credit card debts for long periods, as well as scrapping interest for those with the worst problems.

Bailey said the FCA was also watchful that the industry might seek to get around last week’s measures on persistent credit card debt.

‘We will be watching very carefully. Once you put returns under pressure you expect some reaction,’ he said.

It is also looking to introduce consistent standards for consumer credit applications later this year. ‘What we are generally worried about is that there isn’t a consistent enough approach. The quality of credit assessment is pretty variable. It’s a highly segmented market,’ he said.