The FCA has today written to the UK’s major retail banks, asking them to provide evidence of how they have arrived at their new overdraft interest rates, which have all been set at around 40%. The FCA also asked the banks to clarify how they will deal with customers who could be worse off following the changes, and expects firms to take “positive steps” to helps these customers – for example, by reducing or waiving interest, or offering a continuation of overdraft borrowing at current rate of interest.
The FCA’s letter comes after it introduced wide-spread reforms to the “dysfunctional” overdraft market to end harmful unarranged overdraft charges. From April this year, firms are required to charge a simple annual interest rate, without additional charges for using an overdraft.
Today’s letter is perhaps an acknowledgement from the FCA that its overdraft changes have not been implemented quite as expected, and a warning to banks that the FCA will be “keeping a close eye on the market” and will take action should it “see continued harm”. The banks have until 10 February to voluntarily respond to the FCA’s letter, following which we should expect more communications and possibly further action from the FCA.