Why banks may start charging for current accounts due to crackdown on overdraft fees
The FCA believes that fundamental changes in the way that unarranged overdrafts are provided may be necessary
BANKS may be forced to radically change the way they charge customers going into the red, Britain’s financial watchdog has warned.
The Financial Conduct Authority (FCA) today published the outcome of its review into high-cost credit, including unplanned overdrafts and payday loans.
It said that a fundamental reform of unarranged overdrafts was needed as it had "significant doubts" about whether they could continue in their current form.
"The nature and extent of the problems that we have found with unarranged overdrafts mean that maintaining the status quo is not an option," said Andrew Bailey, chief executive of the FCA.
"We are now working to resolve these issues while preserving the parts of the market that consumers find useful."
In the past, lawmakers have asked banks whether they use high overdraft fees to help subsidise free current accounts.
In 2012, Mr Bailey said that free banking was a "dangerous myth".
It was previously reported that Mr Bailey could use the review into overdraft fees as a way to drive wider reform of how banks make profits - eventually putting an end to free banking.
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Banking expert Andrew Hagger from told the Sun Online: "If the banks are forced to drastically cut their unauthorised overdraft charges they may look to recoup this lost revenue by introducing new fees and that could include monthly fees for current accounts - even for those who always remain in credit."
An investigation by consumer group Which? into unarranged overdraft fees found that consumers needing as little as £100 could be charged up to 12.5 times more by major high street banks than the FCA allows payday loan companies to charge.
Customers who become overdrawn and haven't pre-arranged an overdraft can face fees of up to £6 per day at some banks.
About £1.2 billion of revenues of banks’ revenues in 2014, came from unarranged overdrafts, according the Competition and Markets Authority (CMA).
Earlier this month, Lloyds Banking Group, which includes Halifax and the Bank of Scotland, became the first large UK lender to abolish unplanned overdrafts.
The change meant that starting from November, any customer going over their overdraft limit will face no fees at all.
Commenting on the FCA's review Guy Anker, managing editor at MoneySavingExpert.comsaid: “We may at last be hearing the death knell of charges for breaching overdraft limits.
"They're punitive, designed to be tough to repay, resulting in charges on charges leaving some owing £1,000s."
But, in its the FCA also said that regulation of high-cost short-term credit, known as payday lending - first introduced in 2015- had delivered "substantial benefits" to consumers.
The review found that 760,000 borrowers are saving a total of £150 million per year with firms now much less likely to lend to customers who cannot afford to repay.
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