The Financial Conduct Authority (FCA) has demanded that major banks explain their new overdraft pricing and the measures they have taken to protect customers affected by the changes.
In a letter dated 28 January, the UK’s regulator of the financial services industry seeks an explanation of why nearly all major banks have set their overdraft rates around 40% in response to a recent rule change.
“We are writing to you to understand more about your new overdraft pricing and the measures you have in place to help customers who may be adversely impacted by the changes you are making to this pricing,” the FCA wrote. “This letter asks you to provide more information on both points.”
The FCA’s new rules on overdraft pricing, set out in its Policy Statement PS 19/16, come into force on the 6th of April 2020.
In search of “simpler, fairer” rates
The financial watchdog said its package of remedies would make overdraft pricing simpler, fairer and easier to manage. “We expect that the changes will result in a fairer distribution of charges, particularly benefitting vulnerable consumers, who are disproportionately hit by high unarranged overdraft charges.”
However, as we reported last week, the regulatory changes have caused rates to bunch up around the same level. Lloyds, Halifax, HSBC, First Direct, Santander, TSB and Nationwide have now set overdraft rates at 39.9%. RBS and NatWest have gone a little lower at 39.49%. Meanwhile, Barclays has opted for 35%.
In its letter seeking answers, the FCA underscores that “our rules require you to take measures to help and support those customers who are worse off because of these changes. This is important for all customers and particularly those who are or may be vulnerable.”
Information banks that must provide provide
The regulator is asking banks to turn over the following information:
“A summary of how you arrived at your new overdrafts rate(s). This should include:
“Which internal factors were considered in setting your new overdraft rate(s)
“Which external factors were considered in setting your new overdraft rate(s)
“How these factors were taken into account in setting your new overdraft rates
“A timeline of key decisions, particularly, any points where you substantively revised your rates
“A summary of decision-making executive meetings where setting your new overdrafts rate(s) has been discussed and, where available, minutes of those meetings. This should include attendance lists.
“Any pricing paper proposals that you put to your decision-making committee
“A summary of your approach to dealing with customers who will be worse off following your pricing changes and the measures you are taking to support them.
“We would like further information on the number of consumers who will be worse off due to a change in their overdraft rate and your strategy for communicating with them and supporting them to deal with this change.”
Operationally, the FCA says, banks will need to ensure they are able to support all customers with the changes now and once the rules are in place.