Comment from the Financial Health Exchange on Caps on Overdraft Fees

17 May 2016

Today the Competition and Markets Authority has moved to cap fees associated with overdrafts as a way of boosting competition in the current account market.

While we welcome the introduction of grace periods for overdraft customers, we worry that the CMA are not setting the overdraft cap limits themselves. We are not convinced that allowing banks to decide their own cap limits is the best method for a competition regulator.

We also worry that the CMA are too reliant on consumers switching accounts. To date, switching remains low and has thus not led to innovation around the needs of low income consumers, particularly those who regularly go overdrawn already. Whatever the relative merits of easier switching is, these merits have yet to be properly communicated to those on low incomes and we worry that the ‘innovation’ which has occurred has concentrated solely on prime banking customers.

Having an overdraft is not a barrier to current account switching in principle, but in practice it does raise questions for the bank one wants to switch to. On another practical level it’s a lot more effort to identify which banks offer you a better deal for reducing the level of interest paid on an overdrawn account. This, on top of existing life pressures, all mount up. We feel that better communication on the rights of consumers who have overdrafts, including those who are regularly or persistently overdrawn, are needed about account switching.

See the Competition and Market Authority’s press release here.