Nationwide, my current account provider, states that as a result of the recent Financial Conduct Authority ban on overdraft fees from April 2020, all overdrafts on its current accounts will be charged a single fixed rate of 39.9% EAR/APR (variable) from 11 November 2019. Is this going to be the same for all banks and building societies? If so, it seems the sector is taking advantage of the ruling to introduce iniquitous and totally disproportionate rates in the face of savings rates below 2% and inflation below 3%.
MD, London
You can be certain Nationwide will be the first of many to seek to minimise the impact of the new requirement. In 2017 banks made £2.4bn from overdrafts and fees – some unarranged loans are 10 times more than those charged by payday lenders. The FCA acted to make overdrafts simpler and easier to compare rather than to cap charges, despite concluding many were “disproportionately high”. It also ruled that banks would not impose higher rates on some customers.
Overdraft costs vary enormously. Nationwide is therefore obeying the letter of the rules, if not the spirit, with two thirds of borrowers paying more than before. The new rate is more than double the 18.9% it now charges FlexAccount customers for an authorised overdraft, and it’s removing the £250 interest-free buffer on its FlexPlus account.
It would have you believe altruism is its motive. “Our aim is to make everyday borrowing transparent and put members in control,” it says. “We are removing all unarranged borrowing charges along with paid and unpaid transaction fees, and will send additional text alerts to help members manage their money.”
The FCA says it will keep overdraft pricing under review but declines to state whether it proposes setting a cap on rates.
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