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

Open consultation: CP18/42
18/12/2018
18/12/2018
Consultation closes
18/03/2019
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.

What you need to do

Please send us your comments by 18 March 2019

Online response form

You can also:

  • email your responses to [email protected] 
  • write to: Sara Woodroffe, Financial Conduct Authority, 12 Endeavour Square, E20 1JN

Next steps

We will consider your responses and publish our final rules in June 2019.

After this, firms will have 6 months to comply with the rules on pricing and repeat use, meaning they would be in force by early December 2019.

Once the 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 are consulting in Chapter 8 on proposals to bring this date forward to early December 2019. This is so that implementation of those rules is aligned with the proposed implementation of the pricing and repeat use rules.