The U.K.’s Financial Conduct Authority (FCA) is questioning banks about recently-hiked overdraft fees, some as high as 40 percent and 10 times the cost of a payday loan, Reuters reported on Tuesday (Jan. 27).
Britain’s watchdog wants banks to explain how they come up with overdraft pricing after some of the bigger financial institutions more than doubled fees.
“We have asked to see their plans for how they are dealing with the most affected customers,” the FCA said in a statement. “We will be keeping a close eye on the market and we will act should we see continued harm.”
The rate hikes come on the heels of new FCA rules mandating that banks and building societies charge the same for all overdrafts starting April 2020.
“We are also being clear that we expect firms to take positive steps to help customers who may be worse off or in financial difficulties as a result of these changes. We have asked to see their plans for how they are dealing with the most affected customers,” the FCA’s statement indicated.
In a letter to banks, regulators asked that information be submitted to them voluntarily no later than Feb. 10. Some of the information requested includes a summary “of how you arrived at your new overdrafts rate” and how they handle customers “who will be worse off following your pricing changes.”
Andrew Bailey, the FCA’s chief executive, said that “The overdraft market is dysfunctional, causing significant consumer harm. Vulnerable consumers are disproportionately hit by excessive charges for unarranged overdrafts, which are often 10 times as high as fees for payday loans.”
Last month, HSBC and Santander UK said they were planning to refund the overdraft fees of more than 115,000 customers.
The Competition and Markets Authority (CMA) reported that both banks failed to comply with new regulations that require financial institutions to text customers when their accounts are close to running out of money so they can avoid being charged fees.