Several UK banks have changed their overdraft rates to be around 40%, more than double some of their previous charges. Now the Financial Conduct Authority (FCA) wants to understand why.
The FCA has previously made a study into the country’s overdraft market, declaring it to be “dysfunctional” as customers, especially vulnerable ones, found it difficult to understand how charges for unarranged overdrafts worked.
In response, the financial watchdog introduced new overdraft pricing rules coming into effect in April to make the charges easier to understand.
However, as many of the banks and building societies in the country have now set similar or significantly higher prices than before, the FCA is urging the lenders to explain why they have done so.
In an open letter, it has asked banks and building societies to explain what internal and external factors pushed them to set the new rates and explain their process for setting them.
The FCA also asked for report on how banks and building societies help customers who will be worse off following the price changes.
Banks have until February 10 to comply, even though the FCA stated that providing the information would be done on a voluntary basis.
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