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by Lauren Robson on Sep 16, 2020 Leasing 774 Views

Last year the FCA announced that overdraft fee regulations would change in April 2020. While some overdraft fees have gone down, others have increased.

Complex overdraft fees and the variance of fee structure amongst banks made it difficult for consumers to calculate the true cost of an overdraft and compare offers. Data also showed a finite number of consumers were shouldering the majority of the fees charged from unarranged overdrafts. In 2016, more than 50% of revenue banks made from unarranged overdraft fees came from just 1.5% of customers.

The new regulations introduced by the FCA mean banks are now only allowed to charge one annual interest rate for overdrafts.

The new FCA regulations stipulate that:

Banks must introduce a single annual interest rate or EAR on all overdrafts
Charges for unarranged overdrafts can no longer be higher than for an arranged overdrafts
Banks must eliminate any fixed fees (i.e. daily or monthly fees)
The advertising and pricing of overdrafts must be standardised so the customer can compare overdraft offers
Refused payment fees need to correspond to the amount of the refused payment
Banks must do more to identify customers in financial difficulty and help them reduce their use of overdrafts

Many banks have now increased their annual interest rates on overdrafts. Barclays has one of the lowest interest rates of the high-street banks charging 35% EAR. Natwest now charge an EAR of 39.49%, Santander and HSBC have upped their EAR to 39.9%, and Lloyds have changed their interest rates to between 27.5% and 49.9% EAR.

The new interest rates may seem high, but this is good news for consumers with unarranged overdrafts. The costs for unarranged overdrafts have decreased significantly, as the table below shows. However, some banks such as Barclays and Nationwide are no longer offering unarranged overdrafts to their customers. For Lloyds, Bank of Scotland and Halifax customers, there are no changes in charges for borrowing £100 over 7 days. Arranged overdraft customers, on the other hand, may find themselves worse off after the changes. The cost of the average arranged overdraft at HSBC, for example, has risen to £6.96 to £11.76 annually.

These changes will not impact any individual currently on a payment holiday due to coronavirus. Once the payment holiday ends, these new fees will be introduced. All consumers with overdrafts, both arranged and unarranged, should check how the new fee structure may impact them.

Article source: https://article-realm.com/article/Finance/Leasing/7615-Overdraft-changes-2020-What-do-the-changes-mean-for-you.html

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https://blog.portify.co/the-ultimate-guide-to-overdrafts-in-2020/
Source for data on the cost of overdraft changes in 2020

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