The Financial Conduct Authority (FCA) will today implement new rules on overdrafts as part of a wide-ranging shake-up of the market.
The new rules set out by the regulator mean overdrafts will now no longer be listed under ‘available funds’ in a person’s bank account in an effort to clarify that an overdraft is a form of credit rather than a customer’s own money.
The change is designed to reduce confusion over consumer bank balances and prevent people from accidentally using their overdraft.
New pricing rules are also scheduled to come into force in April next year which will prevent banks from charging higher fees for unarranged overdrafts than arranged ones, fixed fees for borrowing through an overdraft will also be banned.
The pricing structures will also require banks to advertise the fees for arranged overdrafts with an annual percentage rate (APR) to allow customers to more easily compare them with other forms of credit.
“A radical overhaul of the overdraft market to make it fairer and more transparent, was something that was long overdue”, said Salman Haqqi, a personal finance expert at price comparison website money.co.uk.
“The FCA correctly pointed out that a disproportionately high number of vulnerable customers are going into unarranged overdraft and being hit by excessively high fees. The overdraft market needed shaking-up, and these reforms, to ban daily fixed fees, and stop firms charging higher fees for unauthorised overdrafts, will go some way to creating a system that is fair to all and easier to understand.”
However, Haqqi said “one disappointment” as a result of the new rules was that most banks had already hiked their overdraft fees in advance and that without a revenue source from unplanned overdraft fees they may also decide to hike fees on other products.
One such culprit is HSBC Holdings PLC (LON:HSBA), which is planning to introduce a blanket overdraft charge of 39.9% across its adult current accounts from 14 March, following the lead of Nationwide which introduced a similar rate in November.