Enables’ IFA’s in Bishop’s Stortford know some of the old adages are the best. Looking after the pennies certainly does help you to look after the pounds. And making sure that you are not incurring fixed overdraft fees on a regular basis is a good place to draw the line.
So Enable’s IFA’s are interested to hear that the FCA is banning fixed fees for borrowing through an overdraft as part of a major shakeup to the market. The regulator is calling for an end to the fixed daily or monthly charges, as well as fees for having an overdraft facility. Instead, banks and building societies are being asked to price overdrafts by a simple annual interest rate.
“The overdraft market is dysfunctional, causing significant consumer harm. Vulnerable consumers are disproportionately hit by excessive charges for unarranged overdrafts, which are often ten times as high as fees for payday loans. Consumers cannot meaningfully compare or work out the cost of borrowing as a result of complex and opaque charges that are both a result of and driver of poor competition”. Said FCA chief executive Andrew Bailey.
The changes have been driven forward since a research project from the FCA revealed that in 2017, firms made over £2.4bn from overdrafts alone, with around 30 per cent of this coming from unarranged overdrafts. The research also showed that more than 50 per cent of banks’ unarranged overdraft fees came from just 1.5 per cent of customers and that deprived areas were the most likely to be hit by fees.
Andrew Bailey says. “Our radical package of remedies will make overdrafts fairer, simpler and easier to manage. We are simplifying and standardising the way banks charge for overdrafts. Following our changes, we expect the typical cost of borrowing £100 through an unarranged overdraft to drop from £5 a day to less than 20 pence a day.”