Interactive Investor

Overdraft rules could mean your ‘available balance’ is £0

19th December 2019 14:05

Brean Horne from interactive investor

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Beginning today, lenders will no longer be able to include a customer’s overdraft in their ‘available balance’ or ‘available funds’.

New rules on overdrafts announced by the Financial Conduct Authority (FCA) will come into force from today, 18 December 2019. 

The changes are designed to make overdrafts, simpler, easier and fairer to manage. 

From today, banks and building societies will no longer be able to include a customer's overdraft in their ‘available balance’ or ‘available funds’. 

Lenders will also have to send alerts to customers when they dip into an arranged or unarranged overdraft to help avoid unintended overdraft use. Further changes will come into force next spring.  

From 6 April 2020, lenders will no longer be able to charge higher prices for unarranged overdrafts than for arranged overdrafts. They will also no longer be able to charge, fixed fees for overdrafts.  

The new rules will require banks and building societies to do more to identify customers who are showing signs of financial strain or difficulty too. 

Experts say that the FCA's changes will come as a huge benefit to customers, especially those living in deprived areas. 

Peter Briffett, chief executive of income-streaming app Wagestream, says: “Vulnerable customers living in deprived areas are far more likely to be hit by unplanned overdraft fees, and end up paying double what those in better-off areas pay.

“A simpler system of fees should make it easier for customers to compare bank accounts, but we fear that banks will find alternative ways of extracting this profit from their most deprived customers. 

"This is the reality of the poverty premium.”

What are banks doing?

A number of banks have already started to adopt the FCA’s changes. 

Nationwide was the first to announce that it would be introducing a new single interest rate charge of 39.9% in November this year. 

This was shortly followed by HSBC, first direct and M&S Bank who have since introduced a flat overdraft charge of 39.9%. 

Challenger banks Monzo and Starling Bank will also introduce flat overdraft charges which will vary depending on a customers' credit score. 

Monzo customers wishing to use an overdraft will be charged 19%, 29% or 39% while Starling Bank overdraft users will have to pay 15%, 25% or 35%.

This article was first written by our sister magazine Moneywise.

This article was originally published in our sister magazine Money Observer, which ceased publication in August 2020.

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