Banks could be banned from charging higher fees for unarranged overdrafts
The city watchdog has announced plans to stop banks charging higher interest rates and fees when customers go into an unarranged overdraft
BANKS could be banned from charging sky-high interest rates when customers go into an unarranged overdraft.
Today, the Financial Conduct Authority (FCA) announced plans to crackdown on high-cost credit, including those charged by rent-to-own firms, overdrafts and stricter rules for doorstep lenders, thanks to The Sun's Stop The Credit Rip-Off campaign.
As it stands, customers who spend beyond an arranged overdraft are hit with higher interest rates and charges, often in the form of set daily fees.
The FCA is also considering capping how much a bank can charge customers for going into an unarranged overdraft, such as a limit to the daily fees and interest rates.
The watchdog also said that it could extend the cap to arranged overdrafts too.
Some banks already set a cap on unnarranged fees but new regulations could see them as mandatory.
Why we want to Stop The Credit Rip-Off
WE never want you to pay more than double the amount you've borrowed - whether it's for a new sofa or a loan to help pay your bills.
That's why The Sun has launched a campaign calling for a cap on the total cost of rent-to-own loans and doorstep lending at double the original price or loan amount.
A similar cap was introduced for payday loans in 2015 and since then the number of people struggling with unmanageable debts to those lenders has more than halved, according to Citizens Advice.
People on the lowest incomes, living in the poorest places, are paying a poverty premium – up to 7 million people have resorted to high-cost credit, according to the Department for Work and Pensions.
People whose wages or benefits don't stretch far enough need to borrow from rent-to-own or doorstep lenders to help pay for things such as an unexpected bill or to furnish their homes.
These come with exorbitant rates of interest – more than 1,500 per cent in some cases of doorstep lending.
It is scandalous that one mum who borrowed cash to help keep a roof over her family's head ended up paying back over THREE times the original amount.
It's time to stop the credit rip-off.
Here's what we demand:
Rent-to-own
- Cap on all repayable costs at double the item list prices (including fees, add-ons and interest)
- Ban on incentives for all sales staff
- Ban on discounts for existing customers to tempt them into more credit
- Companies to publish example interest rates and costs on all payment options
Doorstep lending
- Cap at double the original amount borrowed
- Stricter affordability checks
- Ban on discounts for existing customers to tempt them into more credit
It's estimated that banks earned £2.3billion from overdrafts in 2016, with nearly a third of which is from unarranged overdrafts.
It's only 1.5 per cent of customers who are hit with these charges, with the majority of them paying about £450 a year.
Customers who go £100 into an unarranged overdraft for 30 days could be charged up to seven and a half times more than a payday loan, according to an investigation by Which?.
It found that Santander is the worst offender adding £155 onto £100 borrowed over 30 days.
The FCA also plans to set compulsory rules where banks have to alert customers about the extra charges.
These include mobile alerts warning of a potential overdraft charges and introducing online tools to make the added costs of an overdraft clearer.
Banks will also not be able to include overdrafts in the term "available funds" and must make it clear that overdrafts are credit or borrowing.
What are the banks charging?
HERE'S what the banks are charging customers who go into their unarranged overdraft:
Santander
Santander is changing some of its charges from 10 July. Unarranged overdraft fees will be removed from the 123 Current Account, 123 Lite Current Account, Select and Private current accounts.
On other current accounts, such as the Student range, the cap on unarranged overdrafts will be reduced from a maximum of £95 a month to £50 and customers will receive alerts when their balance falls below a certain amount.
On arranged overdrafts, customers pay a daily fee of up to £3, with no fee if they credit their account by 4pm on the day they go overdrawn.
RBS/NatWest
For arranged overdrafts the standard fee is £6 – with only one charge administered per month. On unarranged overdrafts there is a charge of £8 a day up to a maximum of £80 a month.
HSBC
Customers who exceed their overdraft limit by more than £10 are charged £5 a day up to either a maximum of £80 or the amount they have gone past their limit.
Starling Bank
Customers pay an effective annual interest rate (EAR) of 15 per cent when they go overdrawn up to a maximum of £2 a month.
Barclays
Customers pay 75p a day on overdrafts up to £1,000, £1.50 a day for those between £1,000 and £2,000, and £3 a day for those over £2,000.
The bank has not offered unarranged overdrafts since 2014. It offers text alerts, ‘grace periods’ and ‘buffer zones’ to help customers avoid fees.
TSB
Customers pay a monthly overdraft usage fee of £6 and debit interest of 19.84 per cent EAR. For unplanned borrowing, customers pay up to £10 a day up to a maximum of £80.
Lloyds/Halifax/Bank of Scotland
Customers pay 1p for every £7 borrowed per day. There are no unplanned overdraft charges and Lloyds Banking Group says more than nine out of ten of its customers are either better off or not financially impacted by the new charging structure.
Monzo
A charge of 50p a day for every day you are overdrawn by more than £20.
Eric Leenders from UK Finance, the trade body for banks, said that they are working with the FCA on a "range of prompts" to help customers keep on top of their finances.
He said: "The industry is also introducing proactive support where persistent use of an overdraft facility might be a symptom of financial difficulty.
"We will continue to work closely with the FCA to make overdrafts more transparent and ensure customers take full advantage of the banking services available to them.”
But consumer group Which? has slammed the watchdog for the drawn out consultation period, describing the delays as "wrong".
Gareth Shaw Which? Money Expert, said: "Last summer, the FCA expressed serious concerns about how unarranged overdrafts work, and now almost a year later it is still refusing to take action.
What did the FCA high-cost credit report say?
HERE'S a summary of everything that will now be consulted on and could come into effect as soon as April 2019:
Rent-to-own
- A cap on the interest that can be charged on rent-to-own agreements such as those offered by BrightHouse and Perfect Home
- A ban on the sale of extended warranties at point of sale
Doorstep loans
- A ban on doorstep lenders offering new loans or refinancing during home visits without being specifically asked to by the customer
Overdrafts
- Banks to give more information to customers about when and how they get into debt - including text alerts to address unexpected overdraft use
- A ban on fixed unarranged overdraft fees
- Mobile alerts warning of potential overdraft charges
- Stopping the inclusion of overdrafts in "available funds"
- Requiring online tools to assess eligibility and make the cost of overdrafts clearer
- Making it clear overdrafts are credit or borrowing
Catalogue credit and store cards
- Require firms to do more to help customers avoid persistent debt by helping them repay it quicker
- An obligation to identify customers in financial difficulty and help them
- Give customers more choice about whether they want their credit limit increased
- A ban on raising the credit limits and interest rates for customers in difficulty.
"As the FCA continues to drag its heels, the Government must urgently intervene to ensure unarranged overdraft charges are brought into line with arranged overdrafts, to finally help all those struggling from these rip-off fees."
In March, The Sun launched its Stop The Credit Rip-Off campaign to help the millions of families who fall prey to doorstep and legal high street loan sharks.
Today, the FCA said that it was now time to "intervene" and help the 400,000 rent-to-own customers.
"High cost credit is used by over three million consumers in the UK, some of who are the most vulnerable in society," FCA Chief Executive Andrew Bailey said in a statement.
"Today we have proposed a significant package of reforms to ensure they are better protected, including the possibility of a cap on rent-to-own lending."
The package of proposals could save consumers a combined £200million a year, the watchdog said.
Joanna Elson OBE of the Money Advice Trust said: "While new measures on unarranged overdrafts may go some way in addressing the problems we help people with at National Debtline – the FCA should still be prepared to intervene with its 'backstop price cap' if consumer detriment persists in this area.
Speak to one of these organisations - don't be tempted to use a claims managment firm that will claim it can write-off lots of your debts in return for a large up-front fee.
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