—>
Main Menu

Biggest change for generation

Watchdog wants banks to slash customer overdraft fees

Money - own picBanks may be forced to charge a single interest rate for all types of overdraft in order to simplify the system and stop customers being confused.

Some are being charged ten times more for using their overdraft than if they took out a payday loan.

Banks are accused of taking advantage by ramping up fees for unarranged overdrafts, charging flat rates and imposing big fees on customers if they have a payment refused.

Under new proposals customers would be able to compare banks for the best deal. City regulator the Financial Conduct Authority, is also proposing a ban on any fixed fees linked to an overdraft.

Andrew Bailey, chief executive of the Financial Conduct Authority the proposals are “the biggest intervention in the overdraft market for a generation.”

Andrew Hagger of Moneycomms says the changes “will prevent customers getting a raw deal on both arranged and unauthorised overdrafts”.

He said: “The banning of fixed-fee overdrafts is long overdue as they are simply punitive, particularly for those who borrow short term or relatively small amounts.

“The banks have tried to claim that fixed fee charging is easier for customers to understand – that might be so but such ‘transparency’ comes at a huge cost for the borrower.”

Russ Mould, investment director at AJ Bell, said the plans were “negative for investors who own shares in certain parts of the utility sector.”

He said: “Energy distribution group National Grid, loved by many investors for its dividends, is particularly affected by the announcement.




“Power generation is a free market in most parts of the world, yet regulated utilities’ earnings are usually decoupled from demand, in theory substantially reducing risk.

“Someone like a gas pipe owner would effectively receive back their capital investment over the lifetime of the asset through a tariff set by the regulatory formula, plus receive a rate of return set by the regulator and adjusted over time to take into account movements in interest rates.

“Returns are usually inflation-linked in that most regulation is carried out on a real rather than nominal basis.

“Ofgem says its new proposals will lower returns for investors and generate more savings for consumers. National Grid is not happy, saying the proposed finance package doesn’t reflect the level of risk borne by transmission networks.

“The consensus analyst forecast is for National Grid to pay 48.9p per share in dividends for the financial year to March 2020, implying a 6.1% yield. One could expect dividends beyond 2021 to potentially be less generous should Ofgem’s proposals be finalised without any amendments.

“It shows that even the most defensive companies are still at risk from regulatory changes.”

The proposals include:

  • Ensuring the price for each overdraft will be a simple, single interest rate – with no fixed daily or monthly charges;
  • Tackling the highest costs in the market by stopping firms from charging higher prices when customers use an unarranged overdraft;
  • Banning fixed fees for borrowing through an overdraft;
  • Mandating that arranged overdraft prices must be advertised in a standard way, including an APR (annual percentage rate) to help customers compare them against other products;
  • Telling banks to do more to identify overdraft customers who are showing signs of financial strain or are in financial difficulty, and to help them to reduce their overdraft use.


Leave a Reply

Your email address will not be published. Required fields are marked as *

This site uses Akismet to reduce spam. Learn how your comment data is processed.