FCA writes to UK’s banks over aligned overdraft rates

The FCA has written to the UK’s major banks requesting them to provide evidence of how they arrived at their pricing decisions on overdraft rates.

The regulator announced that it was particularly seeking how major banks had aligned their overdraft rates at just below 40%.

This comes after the FCA announced reforms of the market last week that ended high unarranged charges, which the regulator claimed could save typical borrowers up to £55 per month on an unarranged overdraft of £100 over 7 days.

The FCA also announced it was banning confusing fees and charges, as well as calling for the cost of overdrafts to be made more transparent. In a statement, the regulator said it had now seen the major banks and building societies in the UK release their new rates – with most setting very similar prices.

The regulator said it was expecting firms to take positive steps to help customers it said could be ‘worse off’ or in ‘financial difficulties’ as a result of the changes, and has requested plans for how firms are dealing with the most affected customers.

Commenting on the latest update from the FCA, Hargreaves Lansdown personal finance analyst, Sarah Coles, said: “The banks may have shot themselves in the foot by announcing sky high arranged overdraft rates that bear a spookily similarity to one another. The FCA warned all along that if the banks didn’t offer competitive rates, it could consider overdraft charge caps.

“The FCA won’t be surprised that banks have hiked arranged overdraft rates in response to their new rules – they always said this would happen. But the fact that a big chunk of the high street has somehow simultaneously alighted on 39.9% has rung alarm bells.

“Back in December, when it first announced the changes, it said it didn’t want to introduce a cap on overdraft charges – in case banks saw it as a target rather than a limit. Instead, it hoped the changes would mean they actively competed to offer the best rates. However, it warned that if they chose not to compete and rates were hiked more than expected it would consider a cap.”

The FCA’s statement closed by saying it would be keeping a ‘close eye’ on the market, and that it would act should it see ‘continued harm.’

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