CP18/42: High-Cost Credit Review: Overdrafts consultation paper and policy statement

Open consultation: CP18/42
Consultation closes
Final rules
June 2019

This paper sets out our proposals to radically reform the ways banks and building societies charge for overdrafts. It also sets out the rules we have made to address low awareness and engagement in this market.

Read CP18/42 (PDF)

Read Technical Annex (PDF)

Read Consumer Research: Technical report (PDF)

We see harm to consumers – particularly to vulnerable consumers – from the disproportionate burden of high charges and repeat use of overdrafts. Our package of proposed changes is intended to reduce this harm.

How we will do this

We want to address the complexity of overdrafts, the high level of charges and the harm from repeat use with a package of remedies that includes:

  • stopping firms from charging higher prices when customers use an unarranged overdraft
  • banning fixed fees for borrowing through an overdraft, (other than fees for refusing a payment due to lack of funds (‘refused payment fees’) which firms are entitled to charge for under the Payment Services Regulations 2017)
  • simplifying overdraft pricing - ensuring the price for each overdraft will be a simple, single interest rate – no fixed daily or monthly charges
  • standardising how arranged overdraft prices are presented in advertising, including an Annual Percentage Rate (APR) to help consumers compare overdrafts against other products
  • requiring firms to do more to identify overdraft customers who are showing signs of financial strain or are in financial difficulty, and to help them to reduce their overdraft use
  • acting to address low levels of awareness and engagement with overdrafts (we’ve already consulted on this and we set out our final rules in this paper)
  • issuing new guidance to reiterate that refused payments fees should reasonably correspond to the costs of refusing payments

Who this applies to

Please read the parts of the paper that matter to you.

We suggest that you read the whole of this document if you are a:

  • bank or building society offering overdrafts, or
  • a trade body representing these firms

If you are a provider offering products marketed to consumers as having the same function as an overdraft – for example rolling account credit products marketed alongside pre-paid cards – you should read Chapter 4, but you may want to read the full document.

Payment service providers offering payment accounts that charge for refused payments should read the relevant sections of chapter 4.

As part of our Review, we have also separately published consultation papers on changes for the rent-to-own market including proposals for a price-cap and our Feedback on CP18/12 with final rules and guidance and consultation on Buy Now Pay Later offers.

Next steps

This consultation has now closed. We will consider all responses and publish any final rules in June 2019.

Our consultation proposal was that, after this, firms would have 6 months to comply with the rules on pricing and repeat use, meaning they would be in force by early December 2019. 

After any final rules are made, we will monitor the market and keep overdraft pricing under review.

The rules to address low levels of awareness and engagement with overdrafts described in Chapter 7 come into force on 18 December 2019. However, we consulted in Chapter 8 on proposals to align this with our pricing and repeat use remedies.

Page updates

12/04/2019: Information added Updated to note the closed consultation