Yahoo Finance Bank bosses deny overdraft 'cartel'
Senior bankers have denied colluding to raise overdraft interest rates after most of the industry moved to put rates up to around 40%.
The Financial Conduct Authority (FCA) announced new rules last year clamping down on complex overdraft fees, instead ordering banks to show a simple annual interest rate so customers can shop around when they need credit.
Since then, major banks including HSBC (HSBA.L), Santander (SAN.MC), Nationwide, and Lloyds (LLOY.L) have all announced an overdraft interest rate of 39.9%. The uniformity prompted the regulator to ask banks to explain themselves at the start of this year, although the FCA ultimately decided against a full investigation.
Rushanara Ali MP asked senior bankers who appeared before the Treasury Select Committee on Monday if executives had colluded to raise prices.
“It absolutely is not a cartel,” Susan Allen, chief executive of retail and business banking at Santander UK, told MPs.
“I can be categoric about the fact that there was absolutely no discussion or engagement across the banks in this rate,” she told the Treasury Select Committee. “All of us took our own decisions.”
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Amanda Murphy, head of commercial banking UK at HSBC, said: “There’s certainly no cartel. It was at the request of regulators to make it more transparent and fairer for customers.”
Paul Thwaite, chief executive of commercial banking at NatWest Group (NWG.L), said his bank’s decision to go to 39.9% was a “carefully considered decision that we took independently”.
Bosses defended the high interest rate, saying overdrafts were only meant to be used infrequently.
“In advance of introducing the fee, every customer who was a regular or frequent user of overdrafts was contacted to see if there were better ways to achieve their financing,” Murphy said. “For 70% of those customers there was no impact [from the new interest rate] or indeed cheaper than their previous fees.”
Allen said: “I know that the rate does sound quite high but bare in mind that the rate is meant to be for infrequent use.”
Earlier this year the FCA ordered banks to offer all customers a fee and interest free overdraft of up to £500 as a result of COVID-19. Banks were also told to ensure all customers are no worse off as a result of changes in overdraft rules during the pandemic. Those special measures lapsed in autumn but the regulator has told banks to offer tailored support to customers who need it most as a result of the crisis.
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