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Watchdog will put overdrafts and loans under microscope


Praise: Vickie Sheriff

Praise: Vickie Sheriff

Praise: Vickie Sheriff

Overdrafts are to be put under the spotlight by the City regulator alongside other high-cost loans, such as payday loans, as part of moves to help customers take more control over their finances.

The Financial Conduct Authority (FCA) said it was planning to focus in on the sector and would look at both arranged and unarranged overdrafts as part of the probe.

The move was welcomed by consumer campaigners, who said in some cases relying on an overdraft can be more expensive than taking out a payday loan.

A recent investigation conducted by the Competition and Markets Authority (CMA) suggested customers often under-estimate how heavily they rely on their overdrafts and that complex overdraft charging structures can make it hard to work out whether they could be better off elsewhere.

The CMA has also previously found the older and larger banks do not have to work hard enough to win and retain customers.

The FCA, which is working to improve competition in the current account sector, wants to get a full picture of the high-cost credit market, which also includes door-to-door lending and logbook loans - where someone's car may be put up as security for a loan.

Aspects of the sector it could consider may be whether someone uses their overdraft heavily because they would struggle to get a loan elsewhere.

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A cap on the overall cost of a payday loan has previously been introduced to prevent borrowers' debts spiralling out of control.

Vickie Sheriff, Which? director of campaigns and communications, said: "We welcome this commitment to review punitive unarranged overdraft fees, which our research has found can be more expensive than some payday loans."

Citizens Advice chief executive, Gillian Guy, added: "Overdraft charges can quickly add up to unmanageable debt.

"An unplanned expense that pushes someone into their overdraft by just a few pounds can lead to them being trapped in a cycle of daily charges.

"We helped people with 52,000 overdraft debt problems in the last year - in some cases people are paying more in overdraft charges than they would for a payday loan."

And Andrew Hagger, the founder of Moneycomms.co.uk, said that consumers have been "baffled" for far too long by overdraft costs.