Money Matters Margaret Dibben

Margaret Dibben: Money Matters

Banks earn enormous amounts of money from overdrafts – about £2.4 billion a year – though changes are being forced on them that could knock this substantial earner.

They are being told to charge the same for both authorised and unauthorised overdrafts, to display overdraft information more clearly and to alert customers before they overdraw.

The Financial Conduct Authority has called the overdraft market ‘dysfunctional’ because vulnerable consumers are disproportionally hit by the charges ,which can be ten times more expensive than payday loans.

Around 19 million people set up arranged overdrafts each year and another 14 million go overdrawn without permission. The reforms are intended to help people who struggle with debt – but the outcome could well make overdrafts more expensive for betterorganised borrowers.

By April, banks must charge one interest rate for both types of overdraft and abolish the expensive, fixed daily and monthly fees. This should reduce the typical cost of a £100 unarranged overdraft from £5 a day to less than 20p. The downside is that banks can charge whatever rate of interest they choose. There is no ceiling. So while the cost will