UK banks’ $3 billion overdraft business faces FCA overhaul

Bloomberg

The UK markets regulator began toughening rules on banks’ 2.3 billion-pound ($3 billion) overdraft business, while leaving more “radical options” for later.
Lenders would need to make overdraft fees clearer and alert customers to potential charges under proposals the Financial Conduct Authority. The London-based regulator said it will now consider stiffer measures such as banning fixed fees and tackling steep prices for unarranged overdrafts.
The changes proposed could save customers as much as 140 million pounds a year by making overdraft costs more transparent and stopping people from “unintentionally dipping in to an overdraft in the first place,” said Andrew Bailey, the FCA’s chief executive. The FCA still sees a need for “more fundamental change” in the way banks charge for overdrafts, he said.
“The FCA is taking a cautious approach, which is to be welcomed,” said Greg Stevens, CEO of the Consumer Credit Trade Association, an industry group. “Providing credit to low-income consumers will always be an emotive topic,” he said. “The FCA gets this and it is taking its time to get the balance right.”

‘URGENT ACTION’
The pace of the FCA’s reforms is too slow for John McDonnell, the Labour Party’s shadow chancellor of the exchequer, who said it was “deeply disappointing” the regulator failed to cap overdraft interest and charges. “With nearly 3 million in persistent overdraft debt, urgent action is needed,” he said on Twitter.
Over the past year, the FCA has been scrutinising high-cost credit products such as overdrafts as well as the rent-to-own, home-collected credit and catalog-credit markets. The work has been watched closely by subprime lenders such as Provident Financial Plc, which provide services such as home credit and car loans to riskier borrowers at higher interest rates.
Provident said by email that the FCA’s focus on ensuring the provision of credit and protecting consumers “aligns with how we serve our customers.”