BANKS to be banned from charging rip-off unauthorised overdraft fees in a crackdown on high cost credit, the City watchdog revealed today.
They will also have to charge one single interest rate for overdrafts, rather than a single fixed fee.
The Financial Conduct Authority said the changes would help “millions of people who use an overdraft, particularly the most vulnerable.”
Andrew Bailey, chief executive of the FCA said: ” It is clear to us that the way banks manage and charge for overdrafts needed fundamental reform.
“We are proposing a series of radical changes to simplify the way banks charge for overdrafts and tackle high charging for unarranged overdrafts.
“These changes would make overdrafts simpler, fairer, and easier to manage.”
Banks charge customers up to £80 for £100 unauthorised overdraft taken out over 30 days.
They earned £2.4billion from overdrafts in 2017, with nearly a third of which is from unarranged overdrafts.
It’s only 1.5 per cent of customers who are hit with these charges, with the majority of them paying about £450 a year.
In May, we revealed how overdraft fees can cost MORE than a payday loan.
The FCA also proposed new rules for store cards and catalogue credit including a crackdown on buy now, pay later offers.
It also plans to introduce new rules for people taking out doorstep loans, including forcing firms to explain clearly to customers about the cost of taking out another loan on top of an existing ones.
In March, The Sun launched its Stop The Credit Rip-Off campaign to help the millions of families who suffer due to high cost credit, such as doorstep lenders and rent-to-own firms.
In May it revealed plans to cap rent-to-own firms and overhaul overdrafts.
MOST READ IN MONEY
Last month, the FCA confirmed that rent-to-own firms would be stopped for charging hundreds of thousands of customers more than double for essentials like beds, cookers and sofas.
Debt charity StepChange estimates that last year alone, 1.4million lower-income households resorted to high-cost credit like rent-to-own agreements, payday and doorstep loans, up from 1.1million in 2016.
We provided advice on the alternatives to high cost credit, explained the steps you can take to get out of debt and revealed how you might be able to get a refund on a doorstep loan or high cost credit agreement.
WHAT ARE THE BEST WAYS TO CUT YOUR OVERDRAFT COSTS?
THERE are a few ways, and which suits you will depend. Here are a few options advised by Money Saving Expert's Helen Saxon
Spend less each month – do a proper budget and have a look at what you’re spending on.
Could you cut your morning coffee, or go down a brand at the supermarket?
Or, are you paying too much on your bills – if you haven’t switched energy, insurance and broadband recently, then it’s likely you could save £100s or even £1,000s over a year.
Move your bills – this can be dangerous if you’re not disciplined, but if you move your bills to just before payday rather than just after, many will be in credit (or less in the red) for less of the month, meaning you’re charged less for the overdraft. But – remember those bills are coming out, so don’t treat it like you’ve extra money to spend.
Move bank account – There’s plenty to choose from and you can end up saving money.
Shift your overdraft on to a money transfer card – and don’t build it back up again. We cover this below.
Try setting up “pots” – Sort your cash at the start of each month, so you have a bills pot, a spending pot etc. Use this technique to make payments to your overdraft, eg £100 a month, treating it like any other bill.
We pay for your stories! Do you have a story for The Sun Online Money team? Email us at firstname.lastname@example.org or call 0207 78 24516. Don’t forget to join the Sun Money’s Facebook group for the latest bargains and money-saving advice.