In This Article:
(Adds detail)
LONDON, June 7 (Reuters) - Britain's banks and building societies will have to charge the same amount for all overdrafts from April 2020, the Financial Conduct Authority (FCA) said on Friday, in a radical change that will raise questions about the future of free in-credit banking.
The changes will make overdrafts simpler, fairer and easier to manage, protecting the millions of consumers who use overdrafts, particularly more vulnerable consumers, the watchdog said.
"The overdraft market is dysfunctional, causing significant consumer harm," FCA Chief Executive Andrew Bailey said in a statement.
Confirming proposals first aired in December last year, the FCA said that banks and building societies will be banned from charging higher prices for unarranged overdrafts than for arranged overdrafts.
In 2017 banks raked in more than 2.4 billion pounds ($3.1 billion) in overdrafts alone, nearly a third from unarranged overdrafts.
The FCA also banned fixed fees for borrowing through an overdraft, calling an end to fixed daily or monthly charges, instead requiring that overdrafts are priced using a simple annual interest rate.
Banks have been criticised for using higher fees for unarranged overdrafts to help to subsidise other services. Changes to that system, therefore, will raise questions about the future of the widely available free banking for customers who remain in credit.
"We are simplifying and standardising the way banks charge for overdrafts. Following our changes we expect the typical cost of borrowing 100 pounds through an unarranged overdraft to drop from 5 pounds a day to less than 20 pence a day," Bailey said. ($1 = 0.7875 pounds) (Reporting by Huw Jones Editing by David Goodman)