Britain’s banks have two weeks to explain changes to their overdraft rates that will leave around eight million consumers worse off or face action, the Financial Conduct Authority (FCA) said on Tuesday.
The regulator wrote to banks after lenders including HSBC , RBS, Nationwide and Santander announced plans to charge customers a flat rate of nearly 40% for overdrafts – more than double some of their previous charges – ahead of new rules in April.
Other lenders plan to price overdrafts based on risk, with Lloyds annoucing plans that could see consumers with poor credit histories charged as much as 49.9%.
The FCA rule changes were designed to fix a “dysfunctional” overdraft market, banning lenders from imposing fixed daily or monthly fees and from charging more for unauthorised overdrafts than for authorised overdrafts.
But the regulator admitted last week that around three out of ten of the 18.2 million customers using overdrafts would be left worse off after lenders increased prices for arranged overdrafts.
The two-week deadline is unusually short for an FCA request, putting pressure on banks to defend their actions.
The watchdog said banks and building societies needed to take positive steps to help customers who may be worse off or in financial difficulties as a result of high overdraft charges.
“We have asked to see their plans for how they are dealing with the most affected customers,” it said in a statement.
“We will be keeping a close eye on the market and we will act should we see continued harm.”
Gareth Shaw, head of money for consumer group Which?, said: “The current lack of competition on overdraft pricing is disappointing, so it is right the regulator is taking a closer look.
“Banks should also be clear on how they are communicating the changes to customers and helping more of them choose the right type of credit product for their circumstances.”