After looking into overdrafts, the Financial Conduct Authority (FCA) has declared them to be poor value for money and difficult to understand.
An estimated £8 billion is owed to banks and building societies through overdrafts. The regulator has looked into overdrafts that come as part of a current account, as well as unarranged overdrafts - where the bank allows a person to go over their overdraft limit - and concluded that "even the most astute consumer could struggle to understand what they are paying for" with an unarranged overdraft.
The FCA also said that many consumers were confused about costs. Christopher Woolard, director of policy at the FCA, said:
“Just about everybody who banks can have access to some sort of overdraft facility - whether they have signed up for it or not,
“The sheer size of this market is huge and with overdrafts bolted on to over 30 million UK current accounts, we want to make sure it is working well for consumers.”
The British Bankers’ Association (BBA) which represents the major banks, said overdrafts were still a good option for lots of people. Eric Leenders, the BBA’s executive director in charge of retail, said:
“Millions of people find overdrafts are an easy way to borrow money, more flexible and convenient than taking out a loan,
“Anyone who uses this type of borrowing receives details of how much they are charged in their accounts statements.
“Overdraft charges have plummeted in recent years, with estimated savings of up to £928m for customers since 2008,
“But if you are unhappy with how much you are being charged, we recommend you shop around for an account better suited to your needs.”
The FCA is set to investigate the market over the summer.