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Our comment on the FCA retail banking review for overdrafts

27 June, 2018

We note that the Financial Conduct Authority today reports that bank overdrafts are significant drivers of profitability on bank personal current account business, and the regulator’s comment that “we have concerns that unarranged overdraft charges are more likely to be incurred by vulnerable consumers.”

The regulator says that over 30% of personal current account income to banks derives from overdraft revenue. It also found that the margins on overdrafts were significantly higher than on other areas of business – 28%, compared with 8% on credit cards and 5% on unsecured loans [pp 29-30 of FCA report].

Peter Tutton, Head of Policy at StepChange Debt Charity, comments:

"Around 50% of our clients last year had overdraft balances running when they came to us. The FCA’s current scrutiny of overdrafts is very welcome, given that unauthorised overdrafts can be a higher cost form of credit than payday loans.

"The FCA recognises, the majority of unarranged overdraft charges are concentrated on just 2% of current account holders, and unarranged overdrafts are more likely to be incurred by vulnerable consumers. We strongly support the proposals in the FCA’s current consultation on overdrafts that firms should stop charging unauthorised overdraft fees and offer more help to people trapped in persistent overdraft debt. If implemented, these will help to significantly reduce the harm felt by people trapped in what can be a very high cost form of credit."

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