FCA publish rules in relation to Overdraft Pricing and Competition Remedies

08 October 2019

As part of its review into high-cost credit, the FCA has published new rules designed to simplify and improve transparency of overdraft pricing. The rules, coming into force on 6 April 2020, require firms to publish a range of overdraft pricing details – with a view to increasing consumers’ awareness of firms’ overdraft charging structures. Firms will be under an obligation to publicise, on a quarterly basis, the following about personal current account overdrafts they offer:

  • The lowest and highest interest rates payable by banking customers under their arranged overdraft agreements;
  • The lowest and highest unarranged overdraft interest rates payable by banking customers;
  • The refused payment fee payable by banking customers; and
  • The lowest and highest representative APR for an arranged overdraft agreement, as well as including these in financial promotions communicated by or on behalf of a firm. 

The above will be required to be published in a prescribed table and displayed on the same webpage as, and immediately below, complaints data made to or about a firm. 

From this, firms will need to engage with their current overdraft pricing frameworks to ensure compliance from April next year. As a starting point, firms may want to:

  • Assess how information in relation to its overdrafts (attached to personal current account products) is collated;
  • Review whether its current processes would support the publication of the required information; and
  • Ensure there is sufficient resource to comply with the applicable deadlines on an ongoing basis.

Further, firms will need to ensure that they gather and possess all of the relevant data required to be publicised around pricing information of personal current account overdrafts at the relevant time and in the specified format. Details of what will need to be included will be found within the Banking: Conduct of Business Sourcebook (BCOBS) section of the FCA Handbook. Whilst the rules come into force on 6 April 2020, transitional periods will be in force, with the deadline for full implementation dependent on the type of information disclosed.

These rules are designed to complement the FCA’s existing overdraft pricing measures, coming into force on 18 December 2019. The implications of these changes have been summarised in this article which, at a high level:

  • Require banks and building societies to only apply a simple annual interest rate to overdrafts;
  • Ensure consistency in pricing of unarranged and arranged overdrafts;
  • Mandate the way in which APR is presented, allowing ease of comparison for customers looking to compare products; and
  • Prohibit charging fees for certain circumstances, such as fixed fees for borrowing through an overdraft, fixed daily or monthly charges and fees for having an overdraft facility. 

In practice, firms will need to not only engage internally to assess the fairness of payment charges but also consider how to identify customers in financial difficulty.

In addition to the pricing rules, there are also various requirements related to alerting customers approaching, or entering into, their overdraft. Firms will need to carefully consider the data protection implications of the FCA requirements to ensure they do not inadvertently breach the GDPR or other applicable data protection and ePrivacy legislation when implementing such requirements. In particular, it is likely that firms will need to implement safeguards into their systems to prevent advertising or marketing material being mixed into overdraft alerts so as not to risk breaching the direct marketing rules under the UK’s ePrivacy regulations (known as the Privacy and Electronic Communications (EC Directive) Regulations 2003 or “PECR”). In addition, firms will need to consider the impact of the GDPR’s data protection principles, including:

  • Data minimisation – consideration will need to be given as to whether firms have in place appropriate policies and procedures to ensure that they do not process more personal data than is necessary when providing alerts;
  • Accuracy – firms need to ensure that personal data they process in the course of complying with the FCA requirements is kept up to date and accurate; and
  • Transparency – firms must be transparent with banking customers regarding how their personal data is processed in connection with the FCA requirements – this may require changes to privacy notices. Updates may also be required to other internal documentation, such as records of processing required to be kept by firms under GDPR Article 30. 
Please contact us if you would like to discuss any of the above changes in more detail.
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