The UK’s financial watchdog is “keeping a close eye” on the overdraft market after multiple major banks introduced interest charges of almost 40%.
Banks — including Lloyds (LLOY.L), Santander (SAN.MC), and HSBC (HSBA.L) — have recently announced they are raising overdraft fees to 39.9%. Challenger banks Monzo and Starling are also setting their interest charges at similar rates.
The rise in interest charges come in response to new rules from the FCA clamping down on complex overdraft fees. The new rules, which come into force in April, require banks to show an annual interest rate rather than charging daily fees for unarranged overdrafts. The changes are meant to make it easier for customers to shop around when they need credit and the regulator believes seven out of 10 overdraft users will be better off.
However, banks have responded by raising overdraft rates across the board. Tom Selby, a senior analyst at stockbroker AJ Bell, said the FCA’s reforms had created a “waterbed effect”.
“In the process of pushing down on unarranged fees, the costs faced by those in arranged overdrafts are set to balloon,” Selby said. “Millions of people in arranged overdrafts are now worried about their borrowing costs doubling overnight.”
The Financial Conduct Authority (FCA) said on Tuesday it has asked banks for more information on why and how they decided to set rates at these levels.
The FCA also stressed it…