If the city regulator doesn’t know why the banks can justify 40% interest on overdraft charges, what hope do British consumers have?
Dr Roger Gewolb, Executive Chairman and Founder of FairMoney.com, has called for financial literacy to be at the heart of the government’s plans going forward.
With Lloyds Banking Group joining the majority of high street banks last week to raise their overdraft rates to nearly 40%, the FCA has been quick to state that this move was indeed a fairer distribution of charges across the board as some were being charged up to 80% in fees before these changes. However, with around 19 million people in the UK use arranged overdrafts and around 14 million use unarranged overdrafts each year and the banks pocketing around £2.4bn in fees; this is an epidemic in which customers are penalised and confused by new rules with differing information on caps and repayments for arranged and unarranged overdraft fees.
Now, the FCA have requested the banks to justify their decision to increase the interest rates on all overdrafts. Dr Roger Gewolb, Executive Chairman and Founder of FairMoney.com, has stated that these decisions were already confusing for British consumers, but with banks’ regulator not understanding, financial illiteracy in the UK has never been more prevalent:
“Its madness; the FCA website states that the new fees on Santander’s Everyday Current Account on £100 in an unarranged overdraft for 7 days will cost the customer £0, while a customer with £100 in an arranged overdraft for 7 days will be charged £0.65. While this seems like a nominal amount and both customers will save money, people who are actively trying to plan their finances by using arranged overdrafts are being charged when those going overdrawn in an unauthorised manner are not penalised at all.
Then there is the question of making this information make sense for the average British consumer. There was already limited information on which banks will offer a cap on the fees, and this could lead people to believe that there account is capped when in fact they continue to be charged. This lack of communication from the banks and the FCA is unhelpful for the industry and will lead to greater mistrust from the UK’s consumers towards the high street banking sector. Now the FCA have had to come out and ask the banks to justify this move. If the FCA haven’t got a clue what the banks are up to, what hope have us consumers got?
The FCA, Bank of England and government need to do more to improve the nation’s financial literacy to help people understand how to use their overdrafts responsibly, but these fees across both arranged and unarranged overdrafts mean that many responsible borrowers face the same penalties as people using unarranged overdrafts.”