Last checked at 
(Alliance News) - The UK Financial Conduct Authority said Tuesday it has written to UK lenders demanding more evidence of how they arrive at overdraft pricing decisions.
The financial regulator had previously unveiled plans to clamp down on complex overdraft charging structures across the industry generally, with new rules requiring providers to show costs with a simple annual rate.
But in a statement on Tuesday, the FCA said it is writing to the banks following a trend of rates being set at 40% by "major banks".
"The FCA study into the overdraft market concluded that it was dysfunctional. In particular, consumers found it very difficult to understand what charges they were paying and charges for unarranged overdrafts were very high, regularly 10 times the cost of a payday loan. These charges fell heavily on consumers who are vulnerable," the watchdog said.
The UK financial services regulator said firms made GBP2.4 billion from overdrafts alone in 2017, with around 30% of this coming from unarranged overdrafts. It noted that half of all unarranged overdraft fees came from just 1.5% of customers in 2016.
As a result, the FCA ended high unarranged charges, which is expected to save consumers about GBP55 per month.
The FCA continued: "Confusing fees and charges have been banned, and the cost of overdrafts has been made more transparent. For many occasional borrowers the removal of fees means they will pay less even though their headline rate of borrowing may increase."
Lenders reacted by outlining new rates.
HSBC will impose a single overdraft rate of 39.9% from March 2020, which followed a similar move from Nationwide Building Society – with the FCA now worried the 40% interest could become the new normal.
HSBC UK currently charges rates of 9.9% to 19.9% to overdraft customers.
Last week Lloyds Banking Group PLC, which owns Halifax and Bank of Scotland, announced a rate of 49.9% from April, the highest so far. Satander UK charges 39.9% for overdrafts.
The FCA said: "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."
Adding: "We will be keeping a close eye on the market and we will act should we see continued harm."
By Paul McGowan; paulmcgowan@alliancenews.com
Copyright 2020 Alliance News Limited. All Rights Reserved.
