Overdrafts market, which preyed on the vulnerable, begs nagging questions

Consumer groups argue that the Financial Conduct Authority’s reforms have missed a significant opportunity to introduce price capping in the overdrafts market, which still allows for risk-based pricing. Also, given that the regulator believes the market has caused “significant customer harm”, what action will be taken by the FCA and industry bodies? asks Denis O’Connor.

Denis O’Connoris a fellow of both the Institute of Chartered Accountants in England & Wales and the Chartered Institute of Securities and Investment. He was a member of the British Bankers’ Association Money Laundering Committee from 2003-10 and a member of the Joint Money Laundering Steering Group’s board and editorial panel between 2010 and 2016. He has been a frequent speaker at industry conferences on financial crime issues, both in the United Kingdom and abroad.

The FCA recently announced a radical shake-up [1] in the “dysfunctional” market for overdrafts in order to help customers, particularly those who are “more vulnerable”. The FCA noted that providers made £2.4 billion in 2017 from overdrafts alone, including about £720 million from unarranged overdrafts. In 2016, over 50 per cent of the unarranged overdraft fees were generated from just 1.5 per cent of customers. This equates to each of these vulnerable customers paying £533 per year in unarranged overdraft charges. In some cases, unarranged overdraft fees were over ten times higher than fees on payday loans.