Last week, two papers, one each from Optimisa Research and Jigsaw Research, were published on the FCA website.
The 77-page Optimisa Research report, Consumer Credit Research: Low Income Consumers, examined how over-indebtedness affected low-income households, concluding that more financially vulnerable consumers could get trapped in a spiral of overdraft charges.
The other, 48-page paper from Jigsaw Research, Consumer Credit Qualitative Research: Credit Cards & Unauthorised Overdrafts, found that consumers did not understand how much overdrafts cost and found it hard to compare the market.
Other key findings included the tendency to rely on overdrafts as “available funds” without giving much thought to their cost, a lack of pressure on banks to provide competitive terms and incentives for firms to increase overdraft limits to generate more revenue.
The FCA said recently introduced measures such as text alerts for those nearing their limits had helped matters but that unarranged overdrafts were still too costly and opaque.
The research is the FCA’s first foray into the overdraft market, estimated to be worth £8bn a week, since it took over regulation for consumer credit firms at the beginning of this month.
Eric Leenders, executive director of retail at the British Bankers’ Association, said consumers should shop around for a more suitable current account if they were unhappy with charges.
Mike Pendergast, IFA at Cheshire-based Zen Financial Services, said: “The banks have improved procedures over the years, but it is not uncommon for my clients to get charged £20 or £30 for straying outside their overdraft, and unauthorised overdraft fees and direct debit return fees mount up.”
