Britain’s financial watchdog is demanding that major banks explain why they have set virtually identical overdraft rates of 40% in response to new rules.
The Financial Conduct Authority has banned excessive and confusing overdraft fees, after its investigation concluded the overdraft market was dysfunctional and caused “significant harm” to the most vulnerable customers. It found high street banks charged fees for unarranged overdrafts that were 10 times the cost of a payday loan.
The FCA said its reforms had ended high unarranged charges, saving typical borrowers up to £55 a month on an unarranged overdraft of £100 over seven days.
However, as lenders overhauled their overdraft costs in response to the new rules, most have set similar prices, of about 40%, the watchdog said, prompting it to write to major banks to request evidence of how they have arrived at their pricing decisions.
“We will be keeping a close eye on the market and we will act should we see continued harm,” the FCA said.
Under the new pricing rules, which take effect in April, banks can no longer charge higher prices for unauthorised overdrafts than for authorised ones, and have to price overdrafts using a simple annual interest rate. Nationwide introduced a single 39.9% rate in response, and others have announced the same rate, including HSBC and Santander. Last week Lloyds Banking Group,…