FCA ready for 'fundamental reform' of unarranged overdraft fees

The Financial Conduct Authority has underlined its readiness to clamp down on banks' high overdraft charges that disproportionately affect the least well-off.

Christopher Woolard, head of strategy and competition, said the FCA’s research showed there was a case for “fundamental reform” of unarranged overdrafts. The regulator is carrying out further work before reaching firm conclusions.

The FCA said in January that these overdraft fees were high compared with the small sums of money borrowed. More than half of total charges levied by banks and other current account providers affected just 2% of accounts, it said. Lloyds Banking Group has scrapped the charges and Santander plans to do so on some accounts. Royal Bank of Scotland has reduced the maximum charge a customer can build up.

Speaking at a conference on responsible finance in Glasgow, Woolard said: “Before we reach final conclusions, we need to complete more analysis, for example to be sure that there aren’t any knock-on effects or unintended consequences of any action we might take. But the evidence gathered so far reinforces our concerns about this particular part of the market. And we won’t shy away from taking action if we deem it necessary.”

The FCA’s work on overdrafts is part of its push to reform the market for high-cost credit. In the UK, 4.1m people are in financial difficulty and half the population shows signs of financial vulnerability, Woolard said.