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UK’s FCA To Investigate Bank Overdraft Charges

Financial Conduct AuthorityThe Retail Banking Industry in the United Kingdom (UK) could be hit with more restrictions as the UK watchdog, the Financial Conduct Authority (FCA) recently announced that it plans to launch an investigation into overdraft charges imposed by banks.

The Competition and Markets (CMA) Authority rolled out a number of new regulations in August 2016 that was designed to give the retail banking industry a much needed boost. The regulations issued by the CMA was done on the basis of a two year study that sought to break the hold that big lenders had on the high street.

One of the main changes the CMA wanted to implement was to give banks the authority to make their own maximum monthly charges (MMCs) on overdrafts which meant that regulators would no longer be able to set the cap.

Most of the changes suggested by the CMA were criticized, especially the move to allow banks to fix their MMCs. It now appears that the FCA will override the CMA’s suggestions as it looks to fix new rules that will govern overdraft charges. The FCA confirmed that its investigation will go over the scope of the recommendations made by the CMA.

In a statement, Christopher Woolard, the FCA's executive director of strategy and competition said

Our role in regulating retail banking markets goes beyond the remedies the CMA has asked us to take forward, and we will continue to look more broadly at how well these markets work, with a particular focus planned on high-cost credit including overdrafts. We will also be looking at wider retail banking business models.

The banking report that the CMA released cost the government £5 million and was 700 pages long. Alasdair Smith who led the CMA banking investigation had to face MPs from the Treasury Select Committee earlier this week who criticized the CMA’s suggestions and views on banking overdrafts and accused the CMA of not doing its duty efficiently.

Current overdraft laws make it difficult for customers to calculate their fees and overall charges which often result in them getting bills that they do not expect or have made provision for. As a result, they find it difficult to manage their finances. Financial analysts in the UK hope that the FCA investigation will make overdraft laws in the country more transparent and less expensive making it easier for the common man.

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