The Financial Conduct Authority (FCA) announced Tuesday (Dec. 18) that U.K. banks made more than $3.03 billion from charging overdraft fees last year.
According to a report in Reuters, citing the FCA, about 30 percent of that $3.03 billion came from fees for overdrafts that were arranged for customers without agreeing to or exceeding an overdraft limit. What’s more, the FCA said that the use of overdraft should be based on a single interest rate, and that no daily or monthly charges are affixed to that. According to Reuters, about 26 million people in the U.K. use overdraft, which amounts to half of the adults in the country.
“Today we are proposing to make the biggest intervention in the overdraft market for a generation,” said FCA Chief Executive Andrew Bailey. The report noted that lawmakers in the U.K., as well as consumer groups and the Church of England, have urged the banking industry to make changes to overdrafts to prevent more cash-strapped people from getting hit with high fees and interest rate charges.
The FCA pointed out that unarranged overdraft fees can be as much as 10 times higher than the fees associated with payday loans, another area the watchdog has set its sights on. Half of U.K. banks’ unarranged overdraft fees in 2016 came from 1.5 percent of consumers, the FCA noted. The watchdog plans to be on the lookout for any banks that try to apply inappropriate charges in other products to make up for lost revenue from overdraft fees.
UK Finance, which represents banks in the country, told Reuters that unarranged overdrafts are still important for their customers, but that they are exploring other ways to support those banks. With the proposals would also come a ban on fixed fees for using an overdraft.
“Banks will no longer be able to charge rip-off unarranged overdraft charges, which have long penalized their customers, many of whom can afford it the least,” said Jenni Allen, a managing director at consumer group Which?, in the report.