FCA Hits Back: UK Bank Charges Unlawfully Targeting Clients
The FCA (Financial Conduct Authority) is concerned about the potentially harmful effect that bank charges are having on UK consumers. The City of London’s FCA enforcer, Andrew Bailey, has got banks deeply concerned as he begins probing away at their overdraft structure.
Dubbed an urbane enforcer, Bailey is launching an inquiry into arranged overdrafts at UK banks. These loans are provided to UK current account holders automatically. Given the precarious predicament of the global economy, notably the UK economy at this juncture, Bailey has called this practice into question.
Unplanned overdrafts extremely expensive
According to current data, short-term loans are 12 times cheaper than unplanned overdraft facilities. Many UK current account holders at leading banks like HSBC, Lloyd’s, Barclays PLC, Royal Bank of Scotland Group, and Standard Chartered PLC are unaware that their accounts have gone into overdraft, or worse. Bailey was quick to point out that the current situation was untenable, and would have to change.
The FCA is a watchdog authority tasked with ensuring that customers will have an emergency source of funding available to them without running into blind spots along the way. It is going to prove difficult for the FCA to outright bar unarranged overdraft facilities from the UK banking market. Presently, UK current account holders can be charged fees for rejecting unauthorized debit requests. Legislation aimed at limiting fees would not prevent them from being incurred in the first place. The FCA is the consumer champion; a watchdog authority with big teeth. Previously, the FCA would act as an arbitrator between big business and consumers. Now, it acts as a consumer watchdog authority.
FCA tightens the screws on unapproved loans
On Monday, 31 July 2017, the Financial Conduct Authority restricted the fees being charged by payday lenders. According to the FCA framework, it is now much more difficult for borrowers to be approved. Regardless, almost 2/3 of consumers surveyed believe that they are better off not having received the payday lender loan in the first place. UK banks are unlikely to see the upside of FCA interference.
Profitability will be curtailed, and that may not bode well for a competitive, free market functioning banking system. That FCA chief, Andrew Bailey acts as the moral authority on banking fees, costs, and charges. Interest in UK bank shares is declining. By the close of trade on Monday this week, UK banking giants Lloyds Banking Group, RBS and Barclays closed markedly lower. Investors are wasting no time shorting bank stocks as the FCA tightens the screws.
The FCA acknowledges that there are some inherent benefits to borrowing at higher rates, notably access to lines of credit. The UK economy is currently agonizing through a period of declining real wages and rising CPI. The Bank of England is carefully eyeing the economic climate to gauge the correct timing for a rate hike. It was recently announced that personal loans had increased by 10% while real wages had increased by only 1.5%. This has resulted in an excessive burden on the economy, and the risk of default is growing.
UK banks may lose a viable income stream
The FCA wants to ensure that customers are complying with their loan obligations, by levelling the playing field so that they are not fleeced by the big banks. A year ago, the CMA (Competition and Markets Authority) decided against imposing a blanket limit on unarranged overdraft fees and charges. The CMA decided to give banks the authority to determine these limits, and to inform customers accordingly. Banks earned revenues of £1.2 billion in 2014 from unarranged overdrafts.
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About Brett Chatz
Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise in online trading for spreadbettingreview.co.uk.