The UK Financial Conduct Authority (FCA) has proposed a number of radical measures against high-cost credit and bank overdrafts to safeguard millions of vulnerable consumers.
After an extensive review of borrowing practices across the market, the British financial watchdog is proposing reforms to rent-to-own operators, bank overdraft charges, door step lending, and catalogue credit and store cards.
The FCA is consulting on a number of rules which are expected to reduce the costs for consumers and give them greater control over their finances.
The regulator is mulling to make it mandatory for banks to issue mobile alerts of overdraft charges, along with removing any overdrafts from ‘available funds’ calculations.
Additionally, the new rules will make it mandatory for banks to make it clearer that overdrafts are borrowing that has to be repaid.
FCA chief executive Andrew Bailey said: “High-cost credit is used by over three million consumers in the UK, some of who are the most vulnerable in society. Today we have proposed a significant package of reforms to ensure they are better protected including the possibility of a cap on rent-to-own lending. The proposals will benefit overdraft and high-cost credit users, rebalancing in the favour of the customer.
“Our immediate proposed changes will make overdraft costs more transparent and prevent people unintentionally dipping in to an overdraft in the first place. However, we believe more fundamental change is needed in the way banks charge customers for overdrafts. Given the size of the market our work here will be completed as part of our wider review into retail banking.”
The FCA estimated that banks earned over £2.3bn from overdraft fees in 2016, and that nearly 30% of this came from unarranged overdrafts.
Additional measures being proposed include stopping the inclusion of overdrafts in the term ‘available funds’, requiring online tools to make the cost of overdrafts clearer and launching online tools to assess eligibility for overdrafts, among others.
The FCA believes that these proposals for overdrafts will save customers up to £140m per annum.