Bank Services: Fees and Charges

Treasury written question – answered at on 15 July 2020.

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Photo of Drew Hendry Drew Hendry Shadow SNP Spokesperson (Business, Energy and Industrial Strategy)

To ask the Chancellor of the Exchequer, what assessment his Department has made of the adequacy of banking sector's response to the Financial Conduct Authority's changes to the rules on overdraft charges on April 2020 in relation to (a) overdraft fees and (b) competition on overdrafts within that sector.

Photo of John Glen John Glen Minister of State (Treasury) (City), The Economic Secretary to the Treasury

The Financial Conduct Authority (FCA) is operationally independent from Government and carries out its functions, including its work on the High-cost Credit Review and reforms to overdrafts, within the framework of statutory objectives and duties agreed by Parliament. Decisions on overdraft fees are also commercial matters for firms and Government does not intervene in those decisions.

In June 2019, the FCA announced new rules governing how firms can charge for overdrafts as part of their High-cost Credit Review. These include mandating that firms cannot charge more for unarranged overdrafts than arranged overdrafts, banning fixed daily and monthly charges, and a package of measures to improve the transparency of pricing. Firms were required to implement these new rules by 6 April 2020.

Overall the FCA expects these changes to make overdrafts simpler, fairer, and easier to manage and will protect the millions of consumers that use overdrafts, particularly more vulnerable consumers. According to their analysis, 7 out of 10 overdraft users will be better off or see no change to their fees. In January, the FCA also wrote to firms to ask them to provide evidence of how they arrived at their pricing decisions and continue to monitor the market for harms to consumers.

In response to COVID-19, on 2 April 2020 the FCA announced a series of temporary proposals to provide emergency support for consumer credit customers who were facing short-term cash flow problems as a result of the Covid-19 outbreak. The measures came into force on 14 April 2020. On overdrafts, the FCA expects firms to provide up to £500 interest free buffer for customers for up to 3 months if requested and make sure that all overdraft customers are no worse off on price when compared to the prices they were charged before the recent overdraft changes came into force.

On 1 July 2020, the FCA published guidance on further proposals to support consumer credit customers. On overdrafts, the FCA will expect firms to offer customers who have been negatively impacted by Covid-19 the £500 interest-free buffer for a further 3 months. Firms will also be expected to provide further support for customers impacted by Covid-19 including reducing the cost of borrowing above the interest-free buffer, especially if this cost of borrowing would otherwise increase.

Providers are ready and able to offer support to their customers who are impacted directly or indirectly by COVID-19. The Government encourages anyone concerned about their finances to contact their provider.

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