“Maintaining the status quo is not an option” when it comes to banks’ unarranged overdraft charges, the UK’s City watchdog has said.
The Financial Conduct Authority has published its review into high-cost credit, including the affectiveness of the payday loan price cap.
It said new rules for payday loan firms were having a positive effect and that it had found high-cost lending to poorer households had delivered “substantial benefits to consumers”, with some 760,000 borrowers saving as much as £150m a year.
The FCA had imposed a price cap on payday loans – set at 0.8% a day – to help prevent borrowers from being ripped off.
It was under review to find out if the cap was driving consumers to illegal loan sharks.
The FCA said on Monday it would be leaving it in place to be reviewed again in 2020.
But the regulator expressed “clear concerns” in other areas such as costly unarranged overdrafts and warned “fundamental changes” were necessary in the sector.
Andrew Bailey, chief executive of the FCA, said: “High-cost credit products remain a key focus for us because of the risks they pose to potentially vulnerable customers.
“We are pleased to see clear evidence of improvement in the payday lending market after a period when firms’ treatment of customers and their business models were often unacceptable.
“However, there is more that we can do, and this review is about identifying the areas where consumers may be suffering harm so that we can focus our efforts accordingly.
“In particular, the nature and extent of the problems that we have found with unarranged overdrafts mean that maintaining the status quo is not an option.
“We are now working to resolve these issues while preserving the parts of the market that consumers find useful,” he added.
Earlier this month, an investigation by Which? found some banks were charging customers several times the fees of payday lenders to borrow money.
It compared the cost of borrowing £100 for 28 days and found that charges at some high street banks were as much as £90 – up to four times the maximum charge of £22.40 on a payday loan.
Which? said the FCA should review overdraft charges in the context of other forms of credit and crack down on “punitive” fees.