MPs fear FCA proposals on overdraft rules could end free banking

The head of the UK’s financial watchdog told MPs this morning that he is “very alert” to the possibility that proposed rules to tackle charges for unplanned overdrafts could raise the cost of planned consumer borrowing.

MPs raised concerns that changes to overdraft rules could negatively impact the availability of free banking as banks would seek to replace any reduction in overdraft revenues.

End of free banking?

“Nothing is free in life,” Andrew Bailey, chief executive of the Financial Conduct Authority (FCA), told members of the Treasury Select Committee.

"The bad news for [customers] is they are not getting free banking now,” added Charles Randell, chair of the financial regulator.

“They are paying for their banking services through quite low returns on deposits and quite high and … random charges for their overdrafts."

Randell said that the rise of fintech could mean banks also miss out on payment and transaction fees, possibly leading to a decline of free current accounts as banks seek alternative sources of revenue to make up for the loss.

The FCA is currently running a public consultation on a proposal to ban banks from charging higher fees for unarranged overdrafts than for planned overdrafts.

The regulator also said last month that it wants to scrap fixed daily or monthly charges on overdrafts in favour of a single interest rate.

TSB investigation rumbles on

Bailey also told MPs he expected a first draft of TSB's report into its IT meltdown to be ready next month.

The bank’s botched attempt to transfer customers to a new IT system last April caused chaos for weeks as customers lost access to online banking, before chief executive Paul Pester was put on gardening leave in September.

Asked whether the FCA would ensure more severe consequences for banks that suffer similar failures in future, Bailey said that the FCA will act if banks do not tie their bosses’ pay to operational reliability.

Bailey acknowledged that TSB’s investigators had received an "overwhelming amount of information" as 180,000 people complained and that this would take time to work through.

But the bank must “get on with it”, he added.