Consumers could save over £100m a year from unarranged overdraft shakeup, says watchdog chief

Some of the most vulnerable consumers in society could save up to £100m a year under the watchdog's plans to change the pricing structures of unarranged overdrafts, its boss has said.

Andrew Bailey, the boss of the Financial Conduct Authority (FCA), told MPs that the watchdog wants to bring the pricing of unarranged overdrafts more in line with that of arranged overdrafts to stop firms from charging higher prices.

The FCA's consultation on unarranged overdrafts is currently underway and is due to end later this month, with rule changes made by the end of the year, Bailey told the Public Accounts Committee (PAC).

The FCA has said on average, firms make over 10 times more in revenue from unarranged lending for each pound lent than for arranged overdraft lending, but that the cost differences oF providing the two overdrafts do not justify the "much higher prices" for unarranged overdrafts.

Bailey told the committee that the pricing distribution of unarranged overdrafts was "much more random and tends to fall much more heavily on the most vulnerable in society".

"We believe that the savings that could come to consumers are quite substantial actually, we're talking something over £100m a year," Bailey said.

When asked about whether there would be industry pushback on the proposals, Bailey said: "I know there are some members of the industry who would like more complex pricing structures, but we have taken strong view that we need simple pricing structures."

The watchdog chief said that at the moment, it was not easy for customers to understand what they were paying for or to compare prices with other providers.

"I think the case we have put forward is strong".

At the end of last year the FCA revealed that it wanted to scrap fixed daily or monthly charges on overdrafts in favour of a single interest rate, with banks also facing a ban on charging higher fees for unarranged overdrafts.