Banks will no longer be able to charge exorbitant amounts for unauthorised overdrafts, following the announcement by the City regulator, the Financial Conducts Authority (FCA), of radical reforms to try to fix a dysfunctional market. The changes will come into force next year in April 2020 and apply to personal bank accounts.
Currently, bank customers can be charged if they accidently go over their account limit. The FCA’s proposal will limit the banks’ ability to penalise customers to the extent that they currently. The banks will only be able to charge the same amount as authorised overdrafts.
The FCA expects the typical cost of borrowing £100 through an unauthorised overdraft will decrease from £5 a day to 20p per day. Fixed daily or monthly charges will also be banned.
Banks will have to calculate overdraft charges by a simple annual interest rate, eliminating the current complex and confusing array of charges. It will also be simpler to compare an overdraft with other types of credit facilities, such as credit cards.
Whilst consumer groups have welcomed the proposed changes, they query why the changes cannot to implemented sooner.