By Kevin Peachey
Cost of surviving correspondent
An overhaul of the overdraft strategy successful the UK has collectively saved borrowers £1bn, the City regulator says, but immoderate radical inactive miss retired connected support.
Banks were told to acceptable their ain azygous overdraft complaint by the Financial Conduct Authority (FCA) two years ago to simplify the options for borrowers.
Costs roseate for some, but fell for those who antecedently went overdrawn without permission.
The little analyzable strategy made fees easier to compare, the FCA said.
Overdrafts are intended for short-term oregon exigency use, the regulator said, with different types of recognition much suitable for semipermanent borrowing.
The savings came from reforms successful 2019 and 2020 which tackled overdraft pricing, and provided enactment for customers who utilized overdrafts repeatedly. The argumentation was designed to assistance the 14 cardinal radical who suffered astir due to the fact that they slipped into unarranged overdrafts, without getting authorisation successful beforehand from the bank, and paid overmuch higher charges.
The FCA's valuation of its ain caller rules recovered each lawsuit who had an arranged overdraft oregon entree to an unarranged overdraft saved, connected average, £17.40 successful charges successful 2021 owed to the caller pricing rules.
"The enactment we took to simplify overdraft charges and to tackle precocious unarranged overdraft fees has saved radical crossed the UK astir £1 cardinal successful total," said Sheldon Mills, from the FCA.
"Such savings are captious arsenic radical negociate cost-of-living pressures."
Tackling It Together: How to woody with looming debt
- Take control. Citizens Advice suggest you enactment retired however overmuch you owe, who to, which debts are the astir urgent and however overmuch you request to wage each month.
- Ask for a outgo plan. Energy suppliers, for example, indispensable springiness you a accidental to wide your indebtedness earlier taking immoderate enactment to retrieve the money
The measures were questioned by immoderate borrowers and campaigners astatine the time. Some of the 19 cardinal radical who utilized arranged overdrafts were unhappy astatine the emergence successful their rates.
But the FCA decided charges were excessively precocious and excessively confusing truthful it banned treating radical with unarranged overdrafts otherwise and it banned regular oregon monthly charges. Lenders had made £2.4bn successful gross from overdrafts successful 2017 - astir a 3rd of which was from unarranged overdraft fees and charges - earlier the changes were made.
Although wealth has been saved, and the usage of overdrafts fell sharply during the pandemic, they stay a comparatively costly borrowing enactment with yearly involvement rates of up to astir 40%.
The FCA reappraisal besides recovered that gaps were recovered successful however immoderate lenders show and reappraisal the effectiveness of their policies and procedures for customers who repeatedly usage their overdraft.
That meant immoderate radical were missing retired connected the enactment they should beryllium receiving due to the fact that lenders failed to spot their imaginable difficulties, the FCA said.