No formal inquiry into huge hikes in overdraft fees

Banks will not face an enquiry from the UK’s financial watchdog into their controversial decision to hike overdraft fees by as much as 40%.

The Financial Conduct Authority (FCA) said it would undertake a full evaluation of lenders’ pricing structures in 2021.

In January, the FCA challenged the banks to explain the changes to their overdraft rates that would leave around eight million consumers worse off, or face action.

HSBC, RBS, Nationwide and Santander were among those that had announced plans to charge customers a flat rate of nearly 40% per cent for overdrafts, more than double some of their previous charges.

The banks said the hikes were in response to rules introduced in April by the FCA, which were designed to fix a ‘dysfunctional’ overdraft market. The new rules banned lenders from imposing fixed daily or monthly fees and from charging more for unauthorized overdrafts than for authorized overdrafts.

Most banks estimate that pricing changes would reduce their total overdraft revenue by between a quarter and a third — totalling half a billion pounds across them all — the FCA said.

“We have analyzed the strategic, competitive and financial drivers of banks’ overdraft pricing decisions based on their responses,” the FCA said in a statement. “Having reviewed the evidence we obtained we do not intend to open a formal investigation at this stage.”

The financial watchdog added: “Despite banks increasing headline interest rates, the cost of borrowing will go down or remain unchanged for most people. We will be keeping a close watch on how prices develop, particularly during and after the coronavirus pandemic.”

In August, banks will have to publish quarterly information on their overdraft pricing for the first time, which will be scrutinised by the FCA.

The regulator will also launch a full evaluation of overdraft rules after April 2021.


Leave A Comment

You must be logged in to post a comment.

Latest News