The Financial Conduct Authority has questioned banks over their response to new overdraft rules, after every major lender introduced near-identical charges.
The regulator on Tuesday published a letter sent to banks asking them to explain how they designed recently-announced pricing structures, and how they plan to protect customers who will be left worse-off as a result.
Banks have been overhauling their approach to overdrafts, which generate around £2.4bn in revenue each year. From April, they will be banned from charging more for unarranged borrowing, and forced to introduce more transparent, interest rate-based pricing.
Nationwide Building Society was the first major lender to outline a new flat rate of 39.9 per cent last July, but it has since been followed by TSB, HSBC and Santander. Lloyds Banking Group said it will charge the same rate for most of its customers, with some higher-risk borrowers paying 49.9 per cent. Royal Bank of Scotland and Barclays are also introducing similar rates of 39.49 per cent and 35 per cent respectively.
The FCA said there had been “significant comment” around the fact that “major banks have aligned overdraft rates around 40 per cent”, and asked banks for a detailed timeline of how they came to their decisions.
The regulator said last week that the changes would make 70 per cent of borrowers better off, but faced widespread criticism that banks had “hiked” fees for users who previously relied on pre-arranged overdrafts.
The FCA reminded customers that “overdrafts are not designed to be used for large amounts for long periods of time”, but nonetheless in its letter also asked for more information on how many customers at each bank will lose out, and what banks will do to assist them.