The Financial Conduct Authority’s proposal to ban fixed fees on overdrafts will not set a precedent for intervention in other areas of the financial services industry, the regulator has stated today.
In a 215-page consultation paper published earlier today (December 18) the regulator proposed a number of changes including banning fixed daily or monthly charges, in what it claimed was the 'intervention of a generation'.
But speaking at a press conference this morning, Christopher Woolard, executive director of strategy and competition at the FCA, said the fixed fee ban would not necessarily set a precedent for other areas in which exorbitant fees were potentially found such as pensions and advice.
Mr Woolard said: "When we’re talking about fixed fees in this particular context [overdrafts], what we can see is they are effectively being used as a substitute for very, very high interest rates.
"So rather than presenting a 100 per cent annual percentage rate (APR) what you are actually doing is putting a fee in place, effectively charging a rate of interest by proxy."
He added: "Clearly more generally when we talk about fees and charges across the board, we will look at those on an individual case-by-case basis, but I don’t think you should see this as a precedent for the wider markets."
The regulator and government have made a number of moves in the pension and investment sectors to achieve better value for money for clients and create more transparency.
The government capped charges for workplace pension default funds at 0.75 per cent, while under the Mifid regulations investors are entitled to a detailed breakdown of the charges incurred by their investment.
The FCA has also said it would crack down on extra charges levied on orphaned clients in the platform space after it found some adviser platforms imposed extra fees of up to 0.5 per cent on such clients.
It has also been warning over value for money in the advice space.
Under today's proposed rules arranged overdraft prices will have to be advertised in a standard way, including an annual percentage rate (APR) to help customers compare against other products.
The FCA will also tell banks to do more to identify overdraft customers who are showing signs of financial strain, and to help them to reduce their overdraft use.
The intervention comes as the regulator identified a series of failings in the high cost credit market affecting particularly people in deprived areas.
It found in some cases unarranged overdraft fees could be more than ten times as high as fees for payday loans.
Mr Woolard said, in the event of a £100 unarranged overdraft, where some models now typically charge a £5 daily fee, under the new proposals the fee would be more in the region of 20p a day.
rachel.addison@ft.com
