Rip-off bank charges for accidentally slipping into the red will end

Rip-off bank charges for accidentally slipping into the red could be banned under a major crackdown on expensive borrowing.

The City watchdog yesterday announced new rules that it claims should save borrowers hundreds of millions a year in unauthorised overdraft fees.

But campaigners criticised the Financial Conduct Authority (FCA) for failing to impose an immediate cap on the charges after a wide-ranging review.

The body also proposed reforms on rent-to-own operators, doorstep lending and catalogue credit and store cards. 

Around 13million Britons use unarranged overdrafts and in the worst cases pay up to £450 a year in fees.

Rip-off bank charges for accidentally slipping into the red could be banned under a major crackdown on expensive borrowing

Rip-off bank charges for accidentally slipping into the red could be banned under a major crackdown on expensive borrowing

New measures mean banks will have to send customers text message alerts when they go into their overdraft, be clearer about fees when people open accounts and offer online tools that explain charges more clearly.

The FCA says these proposals are expected to save customers up to £140 million a year. 

But following a Money Mail campaign, the regulator said it is also considering 'radical' measures such as banning daily fixed fees in favour of interest rates and introducing an overall price cap.

These could be announced in December as part of a wider review of the banking sector.

But Gareth Shaw, money expert at Which?, accused the FCA of 'dragging its heels' over capping overdraft fees, adding: 'It's wrong that the regulator continues to delay taking action, leaving consumers affected by this unfair practice trapped in debt.' 

Currently, if customers exceed an agreed overdraft limit they are typically charged a set fee of between £5 and £10 per day, meaning they pay the same charges regardless of how much they go over their agreed limits.

Customers typically pay between 0.1 per cent and 0.5 per cent per day in interest for an agreed overdraft but this soars to more than 10 per cent when it is unauthorised. 

In total, banks rake in around £2.3billion a year in overdraft charges.

Following an 18-month review of the high-cost credit industry, the FCA is also consulting on a price cap on rent-to-own sales of items such as sofas and white goods.

Sarah Carey (pictured) found herself in £18,000 of debt while trying to keep her family afloat after her relationship broke down. Most of the debt was made up of bank charges after she was forced to reduce her hours as a trainee solicitor

Sarah Carey (pictured) found herself in £18,000 of debt

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