Watchdog Orders Banks to Cap Charges for Unauthorised Overdraft Use
August 9, 2016
British banks have been told by a powerful industry watchdog that they must put a cap on the amounts of money they charge their customers for entering current account overdrafts without prior authorisation.
The Competition and Markets Authority (CMA) has unveiled a series of reforms which it insists will “shake up retail banking for years to come”, with one of the regulator’s stated intentions being to see fewer people being charged for unauthorised use of overdrafts.
In addition to setting a cap on charges, banks have been told that they must start sending out mobile phone alerts to customers who are heading into an overdraft without permission and provide a “grace period” in relation to any potential charges.
The CMA has said it expects these reforms to bring about a very significant reduction in the scale of overdraft charges being leveraged against British consumers by high street banks.
According to official figures, the UK’s financial service companies currently make in the region of £1.2 billion each year through charges relating to unauthorised overdraft use and these charges are known to cause serious problems to many thousands of people who struggle to manage their personal debts.
Along with its measures aimed at reducing overdraft charges, the CMA is insisting that banks engage in the use of new technologies such as mobile phone apps to become more transparent in the ways that they communicate with and provide services to customers.
“We want customers to be able to access new and innovative apps which will tailor services, information and advice to their individual needs,” said Alasdair Smith, chair of the CMA’s retail banking investigation.
However, there have been complaints in response to the CMA’s recent announcements that the measures being introduced do not go far enough in protecting customers who struggle consistently with personal debt problems.
“These recommendations from the CMA will not do enough to get rid of excessive overdraft charges,” said Mike O’Conner, chief executive of the StepChange debt charity.
“There should be a cap on unauthorised overdraft charges and it must be set independently by the Financial Conduct Authority, not by the banks themselves. The largest banks already cap charges, but these caps vary widely and are still too high.”
If you live in Scotland and you’re finding it difficult to cope with your debts then Scotland Debt Solutions can help. Call one of our offices directly to arrange a free and confidential consultation.
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