Unauthorised overdraft fees worse than payday loansIn some cases, the cost of unauthorised overdraft fees can be as much as £80 to £100 for every £100 borrowed. This makes an unauthorised overdraft the most expensive form of loan available, at almost four times more than payday loans, according to All Purpose Loans. Andrew Bailey, the Chief Executive of the FCA, has commented on the matter, pointing out that this area of lending was “dysfunctional”, and that:
“Consumers cannot meaningfully compare or work out the cost of borrowing as a result of complex and opaque charges, that are both a result of and driver of poor competition”.Bailey continues:
“The decisive action we [the FCA] are taking today will give greater protections to millions of people who use an overdraft, particularly the most vulnerable.”The changes will mean banks cannot increase charges when account holders go over their planned overdraft limit. However, there will be no restriction to the cost. In response to the FCA’s announcement, key figures in the industry, like UK Finance’s Eric Leenders, claim that:
“Overdrafts can provide a convenient way for customers to smooth their short-term cash-flow, and there is a highly competitive market in the UK. The banking industry is committed to helping customers manage their money and we will be working closely with the FCA to implement these rules.”The FCA’s new regulations aim to stop unreasonably high fees from being applied to overdrafts, and with that, to reduce the amount of debt suffered by those in the UK. Some have claimed that the fees on unplanned overdrafts are greater than those of pay-day loans. The FCA has set out to support people in financial difficulty by preventing the staggering rates sometimes applied to unplanned overdraft today. Other industries currently under review include guarantor loans, car finance and catalogue finance. Industries that are still unregulated in the UK include cryptocurrencies, bridging loans, invoice finance or asset-backed lending.
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