By Huw Jones
LONDON (Reuters) - Banks will be banned from charging higher fees to 14 million people with unarranged overdrafts from the end of 2019, Britain's financial watchdog proposed on Tuesday, in what it called a radical move that could limit availability of free banking.
The Financial Conduct Authority (FCA) said that banks earned more than 2.4 billion pounds ($3.03 billion) from overdraft charges in 2017, with around 30 percent of that from unarranged overdrafts - where customers become overdrawn without prior agreement or exceed any agreed overdraft limit.
The price of using overdrafts, which are accessed by 26 million people or half the adult population of Britain each year, would be aligned, based on a simple, single interest rate, with no fixed daily or monthly charges, the FCA said.
"Today we are proposing to make the biggest intervention in the overdraft market for a generation," said FCA Chief Executive Andrew Bailey.
British lawmakers, consumer groups and the Church of England have all called for changes in the so-called high-cost credit sector to stop vulnerable people getting further into debt as high fees and interest charges add up.
It marks the latest intervention by a watchdog that has already capped interest rates on payday loans, and intends to cap prices of rent-to-own goods.
More than half of banks' unarranged overdraft fees came from just 1.5 percent of customers in 2016, the FCA said.
Unarranged overdraft fees can, in some cases, be more than ten times as high as fees for payday loans.
Fees on an unarranged overdraft of 100 pounds would typically be slashed to 20 pence a day from 5 pounds at present, Christoper Woolard, the FCA's executive director for competition, told reporters.
The FCA would watch for any attempts by banks to "sneak out" inappropriate charges elsewhere to make up for lost revenue, Woolard added.
UK Finance, which represents banks, said it was important that customers are still able to use unarranged overdrafts where appropriate and it was looking for ways to support those who regularly used the facility.
Free-if-in-credit banking is unlikely to disappear quickly as a result of the overdraft proposals, but may become less widely available in future because of other factors, the FCA said.
There would also be a ban on fixed fees for using an overdraft facility. The proposals on the changes are being put out to public consultation until March.
"Banks will no longer be able to charge rip-off unarranged overdraft charges, which have long penalized their customers, many of whom can afford it the least," said Jenni Allen, a managing director at consumer group Which?.
StepChange, a charity that gives advice to people in debt, called the proposals robust, overwhelmingly needed and very welcome.
(For a graphic on 'FCA overdraft chart' click https://tmsnrt.rs/2GrOKuO)
Following proposals in May, the watchdog said it was also making new rules to strengthen protection for consumers using home-collected or "doorstep" lending, catalog credit and store cards.
Additional proposals related to buy now pay later offers could save consumers 40 million to 60 million pounds.
The watchdog also published its final report from its retail banking review, saying it would initiate further work in three areas: payment services, banking for small businesses, and monitoring of retail banking business models.
