The Financial Conduct Authority (FCA) says that consumers are paying too much for overdrafts, as it publishes research it’s done into the traditionally unpopular, £8bn market.
The regulator, which recently seriously bungled an announcement about an insurance products investigation, says overdrafts still don’t provide good value for money, with many people confused about costs.
It’ll now investigate how providers set and monitor overdraft limits, and their governance and strategies for doing so.
It’s also going to consider making some measures that are currently voluntary mandatory this autumn.
The FCA believes there’s “little pressure” on banks to provide good value overdrafts at present, because it’s not something consumers tend to consider when deciding on a current account, nor something they give much thought to when switching.
On top of costs, its research shows, it says, that people don't necessarily see overdrafts as borrowing and that repayments are often driven by income coming in, rather than scheduled payments to clear an outstanding balance. Moreover, incentives used by banks to increase limits are often perceived by customers as their bank "trusting" them.
Christopher Woolard, director of policy, risk and research, says:
Just about everybody who banks can have access to some sort of overdraft facility – whether they’ve signed up for it or not. The sheer size of this market is huge.. with overdrafts bolted on to over 30m UK current accounts.