UK banks now require to warn customers that they are about to slip into the red via an alert system in an attempt to avoid unnecessary charges.
The rule change arises from the Competition and Markets Authority (CMA) as part of its retail banking investigation.
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During its investigation, the CMA found that banks receive around £1.2bn ($1.7bn) a year from unarranged overdraft charges. This new overdraft measure, combined with the CMA’s recent order to require banks to publicly announce their maximum monthly charges, could create significant savings for many bank customers.
A number of banks already have alert systems in place, but the new rules require all banks to send these alerts – through texts or a mobile banking app – and to implement other measures, such as a grace period in which people can transfer money into their account to avoid being charged.
Adam Land, Senior Director at the CMA, said: “People will now be told when they are about to slip into overdraft, which could help them avoid potentially costly charges. And the changes we are requiring from today make it easier for small firms to switch to another bank for their current account or to obtain a loan.
“These new rules, which are a result of our recent retail banking investigation, are part of a wider package that will help people to get the most out of their banks and force them to work harder for their customers’ money.”
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By GlobalDataThe overdraft alert system is one of four new measures that are being implemented to improve the service people receive and make it easier to switch between different banks.
At the moment, only 3% of personal and 4% of business customers switch to a different bank in any year, even though personal customers in the UK could typically save £92 per year by switching. Small firms, which benefit from 3 of the new measures being introduced, could realise savings of around £80 a year on average.
