Bank Services: Coronavirus

Treasury written question – answered on 8th December 2020.

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Photo of Tulip Siddiq Tulip Siddiq Shadow Minister (Education)

To ask the Chancellor of the Exchequer, if he will (a) extend financial support to those facing a recent increase in bank overdraft interest rates and (b) discourage banks from increasing their overdraft interest rates during the covid-19 outbreak.

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

In 2019, following the High-cost Credit Review, the Financial Conduct Authority (FCA) introduced changes to overdraft rules. These included 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.

Overall, these changes will make overdrafts simpler, fairer and easier to manage. FCA analysis from January this year found that 7 out of 10 overdraft users will be better off or see no change to their overdraft costs as a result of the changes. In instances where a firm identifies that a customer has a pattern of repeat overdraft use and may see increased fees on their borrowing, the new rules require firms to develop strategies to reduce harm to customers.

In April 2020, in response to the Covid-19 pandemic, the FCA announced a series of temporary proposals to provide emergency support in response to the Covid-19 outbreak. On overdrafts, firms were expected to provide up to £500 interest free buffer for customers. Firms were also expected to make sure customers were not paying more for their overdraft than they were before the rule changes came into force. In July 2020, the FCA extended this guidance for those customers who have been impacted by Covid-19 for a further 3 months.

In September 2020, the FCA announced proposals to ensure that firms provide tailored support for users of consumer credit and overdraft products who continue to face payment difficulties due to Covid-19. Where a customer needs further support, firms are expected to use measures such as reducing or waiving interest, agreeing a programme of staged reductions in the overdraft limit, or supporting customers to reduce their overdraft usage by transferring the debt. If any overdraft customer requires this further support then they should speak to their provider.

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