Yahoo Finance Banking watchdog drops threat of inquiry into overdraft charges
UK banks have escaped the threat of a regulatory investigation into unarranged overdraft charges, but the City watchdog has said it will keep a close eye on pricing throughout the Covid-19 crisis.
The Financial Conduct Authority put lenders on notice after they set virtually identical overdraft rates of about 40% in response to new rules that banned excessive and opaque fees.
Evidence gathered since January showed big banks had used a “range of price structures” and that challenger banks were offering lower rates that had helped boost competition.
“Having reviewed the evidence we obtained, we do not intend to open a formal investigation at this stage,” the FCA said on Wednesday. “We will be keeping a close watch on how prices develop, particularly during and after the coronavirus pandemic.”
While headline interest rates for overdrafts had increased overall, the watchdog said the cost of borrowing would go down or remain unchanged for most customers.
Overdrafts are still more expensive than credit cards and personal loans, but the FCA said greater transparency would put “competitive pressure” on overdraft rates as consumers started to shop around.
Banks will be forced to publish historical overdraft pricing alongside information they already release about current account services. That will be released for the first time in August, reflecting rates charged between April and June.
The changes come at a cost for UK lenders, which are already under financial strain because of the pandemic. Most said the new rules would cut their overdraft revenues by up to a third, amounting to about £500m in total across the banks.
The pandemic has pushed interest rates to historic lows of 0.1% and banks have been forced to put aside billions of pounds to deal with potential defaults by customers struggling to repay their debts.
Customers have been able to request mortgage, credit card and personal loan repayment holidays during the pandemic and ditch interest charges on arranged overdrafts up to £500. That support could be accessed until 31 October, the FCA confirmed.
The watchdog said it would carry out a review of the overdraft rule changes by spring 2021.
