The pricing of financial products, including the interest rates charged on overdrafts, is a commercial decision for firms and the Government does not seek to intervene in, or make assessments of, such decisions.
In April 2020, the Financial Conduct Authority (FCA) required firms to have implemented new rules governing how they can charge for overdrafts. 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. FCA analysis found that 7 out of 10 overdraft users would be better off or see no change to their overdraft costs as a result of the FCA’s rules.
In response to the Covid-19 pandemic, 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. On overdrafts, firms were expected to provide up to £500 interest free buffer for customers, if requested, and make sure that customers did not see increased overdraft fees.
In September 2020, the FCA announced updated guidance to ensure that firms continued to 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.
In 2022, the FCA will carry out a post-implementation evaluation of the remedies it introduced on overdrafts.