An overhaul of the UK’s overdraft system has saved borrowers a total of £1billion, the city’s regulator says, but some people are still missing out on the support.
Banks were told by the Financial Conduct Authority (FCA) two years ago to set their own uniform overdraft rate to simplify options for borrowers.
Costs went up for some but went down for those who previously overstayed without a permit.
The less complex system makes it easier to compare fees, according to the FCA.
Bank overdrafts are for short-term or emergency use, the regulator said, while other types of credit are better suited for long-term borrowing.
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The savings came from reforms in 2019 and 2020 that tackled overdraft pricing and supported customers who used repeated overdrafts. The policy was designed to help the 14 million people who have suffered the most by falling into disorderly overdrafts without bank approval and paying much higher fees.
The FCA’s assessment of its own new rules found that each customer who had an agreed overdraft or had access to an unarranged overdraft saved an average of £17.40 in charges in 2021 as a result of the new pricing rules.
“The measures we have taken to simplify overdraft charges and tackle high fees for non-agreed overdrafts have collectively saved people across the UK almost £1billion,” said FCA’s Sheldon Mills.
“Savings like this are crucial as people deal with the pressures of the cost of living.”
- talk to someone You are not alone and there is help. A trained debt counselor can explain the options to you. Here are some organizations you can get in touch with.
- take control Citizens Advice suggests that you find out how much you owe, to whom, what debts you owe most, and how much you have to pay each month.
- Ask for a payment plan. For example, utilities must give you a chance to pay off your debt before taking action to recover the money
- Check if you get the right money. Use the independent MoneyHelper website or performance calculators operated by Policy in Practice and the charities Entitledto and Turn2us
- Please take a breather. If you are receiving debt advice in England and Wales you can request a break to protect yourself from further interest and charges for up to 60 days.
Tackling together: More tips on dealing with debt
The measures were questioned by some borrowers and activists at the time. Some of the 19 million people who used arranged overdrafts were unhappy with the increase in their rates.
However, the FCA ruled that the fees were too high and too confusing, and so banned treating people with unarranged overdrafts differently and banned daily or monthly fees. Lenders had raised £2.4 billion in overdraft revenue in 2017 – about a third of it from non-agreed and overdraft fees – before the changes were made.
Although money has been saved and overdraft take-up has fallen sharply during the pandemic, with annual interest rates of up to about 40%, they remain a relatively expensive borrowing option.
The FCA review also found gaps in how some lenders monitor and review the effectiveness of their policies and procedures for customers who repeatedly draw on their overdrafts.
That meant some people missed out on the support they were meant to receive because lenders failed to recognize their potential difficulties, the FCA said.
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