The “status quo is not an option” when it comes to the fees banks charge for unarranged overdrafts, the UK’s financial services regulator has said.
The Financial Conduct Authority has published its report into the rules governing high-cost lending, including unarranged overdrafts, door-to-door lending and payday loans.
It said new rules limiting payday loans were having a positive effect, however.
Therefore the pay-day loan cap would be kept in place and reviewed in 2020.
The FCA called for fundamental changes to the way banks charged customers going unexpectedly into the red.
“The nature and extent of the problems that we have found with unarranged overdrafts mean that maintaining the status quo is not an option,” said Andrew Bailey, chief executive of the FCA.
He said the FCA would work with banks to look at the design of the products rather than simply capping the charges banks can impose.
“We are now working to resolve these issues while preserving the parts of the market that consumers find useful.”
However, the FCA said that regulation of high-cost short-term credit, known as payday lending, had delivered “substantial benefits” to consumers.
The review found that 760,000 borrowers in this market are saving a total of £150m a year, firms are much less likely to lend to customers who cannot afford to repay, and debt charities are seeing far fewer clients with debt problems linked to high-cost short-term credit.