Ban on unarranged overdraft charges considered by FCA

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Charges for unarranged bank overdrafts could be banned, under one option being considered by the Financial Conduct Authority (FCA).

It said the charges for those who go into the red without agreement can be high and complex.

Earlier this month, the UK’s largest lender, Lloyds, said it was getting rid of unarranged overdraft fees altogether from November.

Barclays has already stopped all unauthorised lending.

However, other banks charge about £6 a day, or up to £90 a month.

“We believe there is a case to consider fundamental reform of unarranged overdrafts, and whether they should have a place in any modern banking market,” the FCA said, in its review into the high-cost credit market.

“Maintaining the status quo is not an option,” said FCA chief executive Andrew Bailey. Unarranged overdraft fees were often “significantly higher” than payday loans, he added.

However, the FCA made it clear that an outright ban on unarranged overdrafts was only one option being considered.

It could impose a cap on charges, or demand some affordability checks before a bank lends money on an unplanned basis.

A year ago the Competition and Markets Authority (CMA) decided against a capon charges.

Half of all overdraft users go over their agreed borrowing limit, according to the CMA. In 2014 such customers spent £1.2bn in charges as a result.

The banking industry responded by saying that customers were usually warned if they were about to go overdrawn, usually via a text alert on on a mobile app.

“When used sustainably, consumer credit is important for economic growth, and lenders work hard to ensure the balance is right between helping customers to borrow while ensuring longer term affordability,” said Eric Leenders, head of personal banking at UK Finance.

Motor finance

The FCA has also highlighted concerns about the rent-to-own market, typically used by consumers to buy fridges, freezers and televisions.

“We think that is a sizeable issue, because people are paying three or four times more than if they used cash,” Mr Bailey told the BBC.

The FCA said that one option might be for housing associations to provide such goods instead.

Mr Bailey said there were also concerns about motor finance, a worry already highlighted by the Bank of England.

“We’re looking at affordability tests and the transparency of terms,” he said.

The FCA will publish an update on this work in the first quarter of 2018.

Payday loans

As part of its review into high-cost lending, the FCA also looked at how the cap on payday loans was working.

It said that the cap, first imposed in January 2015, had delivered “substantial benefits” to consumers.

Since then, no one has had to pay more than 0.8% a day of the amount borrowed. The maximum they pay is no more than twice the amount they borrowed.

The FCA said its review found that the cap meant 760,000 borrowers in this market were saving a total of £150m a year, that companies were now less likely to lend to customers who cannot afford to repay, and debt charities were seeing fewer people struggling with ballooning borrowing from payday loans.

Mr Bailey said the FCA would continue to focus its efforts on what else needed to be done in this area.


Households due £285 rebate on fuel bills, says Citizens Advice

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Every household in the UK should get a one-off rebate of £285 on its fuel bills as a result of excess industry profits, Citizens Advice has said.

Over eight years, it claimed firms that transport gas and electricity – so-called energy networks – have made £7.5bn in “unjustified” profits.

It blamed the regulator, Ofgem, which sets industry price controls, for “errors in judgement”.

Ofgem disputed the claim and said it had already helped to lower fuel bills.

Citizens Advice said that network firms had enjoyed a multi-billion pound windfall at the expense of consumers.

As an example, Citizens Advice said National Grid had made an operating profit of more than £4bn in 2015/16.

However the company’s annual accounts show that around a quarter of that profit was made in the US or on other activities.

Complaints

“Decisions made by Ofgem have allowed gas and electricity network companies to make sky-high profits that we’ve found are not justified by their performance,” said Gillian Guy, head of Citizens Advice.

“Through their energy bills, it is consumers who have to pay the £7.5bn price for the regulator’s errors of judgment. We think it is right that energy network companies return this money to consumers through a rebate.”

Ofgem sets the charges that network companies like National Grid, SSE and Cadent – which distributes gas – can levy in any eight-year period.

That is because they are monopoly operators.

But in the current period, lasting from 2013 to 2021, Citizens Advice says Ofgem has been too favourable to the companies’ interests.

It claims that Ofgem:

  • overestimated the risks for investors in the networks, costing consumers £3bn
  • assumed interest rates would be higher than they turned out to be, costing consumers £3.4bn
  • rewarded companies that inflated cost estimates for projects, costing consumers £1.1bn
Cheaper costs

However, Ofgem said a number of the assumptions used by Citizens Advice were too high, and rejected the idea of a rebate.

“We do think they raise some valid points, but we don’t agree with their modelling or their figures,” said Jonathan Brearley, Ofgem’s senior partner for networks.

On Wednesday Ofgem also announced a consultation on how it should set price controls after 2021.

“We will take some of the issues into account when we examine future price controls,” Mr Brearley added.

He told the BBC that those controls are likely to be much tougher on the companies involved, providing downward pressure on bills.

At the moment, around a quarter of the average fuel bill is taken up by transmission charges.

The Energy Networks Association – which represents the operators – also said it did not agree with the modelling used by Citizens Advice.

It said a similar claim filed by British Gas had already been rejected by the Competition and Markets Authority (CMA).

 


Lloyds Bank, Bank of Scotland and Halifax to scrap charges for unplanned overdrafts

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 Lloyds Banking Group is to launch a simplified “pay-as-you-go” overdraft charging system and scrap some fees, in a shake-up affecting millions of customers.

The UK’s largest current account provider, with over 20 million personal current account customers, said more than nine in 10 of those with its brands Lloyds Bank, Bank of Scotland and Halifax will be left either better off or in the same position financially.

Starting in November, customers will be charged a single rate of 1p per day for every £7 of planned overdraft usage. A fee will be charged at the end of each day of planned overdraft usage, which Lloyds said would help customers to budget, rather than being hit with a bigger bill weeks later.

All fees and charges associated with unplanned overdrafts will be removed. Lloyds is writing to customers to tell them how they will be affected. The less than one in 10 who will be worse off will receive extra support, which could prompt them to consider a more cost-effective way of borrowing.

This may include reviewing alternative options, such as a personal loan. Those who may be worse off are particularly likely to have large overdrafts which they consistently max out for long periods. Lloyds said the average debit balance for a customer using their overdraft is £450 in a month. A Lloyds Bank Classic current account customer using £450 of a planned £1,000 overdraft limit for seven days would currently pay £7.49.

But under the new system they would pay £4.48. A Halifax Reward customer who goes overdrawn by up to their planned £100 limit for 10 days and also goes into an unplanned overdraft by £50 for two of those days will be charged £1.40 under the new system. Previously they would have been charged £18.

The bank expects to make less money overall from overdrafts as a result of the moves, but declined to specify amounts. It is also automatically opting customers into receiving free text alerts, to help them stay on top of their accounts.

People who do not want texts can opt out. Lloyds Banking Group’s changes will also mean that, from November, customers will no longer be charged a “returned item fee” for having payments stopped due to a lack of funds.

Greg Coughlan, the bank’s director of personal current accounts and payments, told the Press Association: “We want to put customers in control so that they can better manage their day-to-day finances” with “pay-as-you-go” daily charging.

He continued: “We think more customers will be able to use their overdraft in a smarter way.” Mr Coughlan said that while the banking group expects to see its overall income from overdrafts reduced: “We’re convinced we will have better relationships with our customers as a result of the change.”

He said that for the vast majority of customers, the charges under the new system would only be “pennies a day”. Vim Maru, group director, customer products and marketing, Lloyds Banking Group, said: “When asked about our new approach, over 80% of customers said that they preferred it compared to the current charging format.” An investigation by Which? into unarranged overdraft fees found some can potentially cost more than a payday loan.

The Competition and Markets Authority (CMA) previously said that in 2014, £1.2 billion of banks’ revenues came from unarranged overdrafts. The Financial Conduct Authority (FCA) is currently putting the high-cost credit sector under the spotlight, including overdrafts. Peter Vicary-Smith, Which? chief executive, said Lloyds’ decision is a “positive step”.

He said: “The Financial Conduct Authority must now use its review of high-cost, short-term credit to ensure other banks follow suit, restricting unarranged overdraft charges to the same level as for arranged overdrafts.

” Andrew Hagger, founder of Moneycomms.co.uk, said Lloyds had taken a “fairly radical move” and predicted more banks would be reviewing their overdraft charges. Mr Hagger said Lloyds’ new tariff works out cheaper for customers with smaller borrowing requirements.

But for those borrowing sums in four figures it starts to get more expensive, he said – for example a £2,000 overdraft for 12 days currently costs a Club Lloyds customer £17.47 but under the new tariff it is £34.29. Mike O’Connor, chief executive of StepChange Debt Charity, said around half of its clients have struggled with overdraft debt.

He said: “This looks a positive step forward, but there is a need to monitor what happens next, not least for the questions this announcement poses for the overdraft market as a whole.”

 

 


Watchdog clamps down on online gambling

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The competition regulator is to take action against some online gambling companies which it suspects of breaking consumer law.

The Competition and Markets Authority (CMA) said some punters did not get the deal they expected from sign-up promotions offering cash bonuses to attract them to gaming websites.

The CMA also said the firms were “unfairly holding onto people’s money”.

Online gambling companies should “play fair”, said the CMA.

Nisha Arora, CMA senior director for consumer enforcement said: “New customers are being enticed by tempting promotions only to find the dice are loaded against them.

“And players can find a whole host of hurdles in their way when they want to withdraw their money.”

The CMA launched its investigation into the gambling sector in October 2016. It has since heard from about 800 “unhappy” customers and has “demanded companies answer questions about how they operate, and closely examined the play on a range of websites”.

As a result it has identified “a number of operators engaging in practices likely to be breaking consumer law”, which is why it is taking enforcement action.

Initially the CMA is talking to the companies, which it says it cannot name, demanding that they change their practices.

The firms can offer undertakings about how they intend to do that. If they do not meet the requirements, the CMA can take them to court. The court could fine the companies or ultimately revoke their licences.

The online gambling sector has grown by about 150% since 2009 and is worth £4.5bn. The CMA said more than 6.5 million people regularly use the sites.


Chancellor failing to cancel ‘tax giveaway’ to banks, says Labour

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John McDonnell, the shadow chancellor, has accused Philip Hammond of failing to cancel a “tax giveaway” by his predecessor to Britain’s biggest banks, worth more than £1bn this year.

In his summer budget after the 2015 general election, the then chancellor George Osborne announced deep cuts to the bank levy, which was introduced after the financial crisis and charged according to the size of banks’ balance sheets. Big banks, including HSBC and Standard Chartered, which felt penalised by the levy, told him that they could move their headquarters outside the UK. Osborne announced phased cuts in the levy over the parliament and made up the shortfall in revenue by imposing an 8% surcharge on banks’ corporation tax, which falls on all lenders, not just the largest.

McDonnell said by failing to reverse the cuts in the bank levy in November’s autumn statement, Hammond was handing the big banks a rebate taxpayers could ill afford. The latest forecasts from the independent Office for Budget Responsibility, published alongside the autumn statement, showed revenue from the bank levy at £2.7bn for the current financial year, instead of the £3.8bn expected in March 2015, before the general election. “Philip Hammond tried to sneak out the fact that he has continued this cut in the bank levy, which will provide big banks with a tax giveaway larger than under even George Osborne. “The fact that we are seeing such a large handout to the biggest banks in our country at a time when we are seeing cuts to our schools, NHS and a funding crisis in our care service is truly shameful.”

McDonnell, who is the closest ally of Labour leader Jeremy Corbyn, will make a major speech on economic policy this month and hopes to draw a clear dividing line with theConservatives by showing that he would take on vested interests as chancellor. He recently made a series of spending pledges to protect pensioner benefits, including the costly triple-lock guarantee (that pensions rise by the same as average earnings, consumer price index or 2.5%, whichever is highest), in an effort to win over elderly voters. Labour also wants to show that it will fight to avoid a “bankers’ Brexit” – protecting the interests of the City at the expense of ordinary taxpayers – though it has said it would like to see the continuation of “passporting”, the regime allowing UK-based banks to trade throughout the EU.

A spokesman for McDonnell said Labour would reverse the cuts to the levy and would be unlikely to remove the corporation tax surcharge, because it came alongside a series of cuts in the corporation tax rate which had reduced big corporations’ tax liability. When the government announced that policy, the Treasury minister Harriet Baldwin told MPs: “It means that the overall rate of corporation tax will be slightly lower for banks than it was in 2010.” Britain’s competition watchdog, the Competition and Markets Authority (CMA), warned that the shift to the corporation tax levy would reduce the advantages of the tax system for smaller banks trying to break into the market. So-called challenger banks told the CMA they expected to be paying up to £123m more in tax between them by 2020-21 as a result of the changes.

“The overall effect, compared with the pre-2016 position, is that the tax advantages of smaller banks including new entrants have been reduced as a result of the changes to the bank levy and the introduction of the CTS [corporation tax surcharge]. Therefore, any effect that these tax advantages had in offsetting the barriers to entry and expansion such banks face are likely to be reduced,” the CMA said.

A Treasury spokesperson said: “The government is clear that banks, like all businesses, must pay the right amount of tax. The reform of the bank levy was announced alongside the introduction of a new 8% surcharge on bank profit. Together, the levy and the surcharge are expected to raise over £18bn from banks over the next five years.‎” McDonnell also called for Hammond to abandon “deeply unfair” cuts to the corporation tax rate, saying the money could have been used to fund teachers, nurses and police officers. The rate has been reduced from 28% in 2010 when David Cameron became prime minister, to 20% and will fall to 19% in April under plans to reduce it to 17% in 2020. The cuts will be worth almost £15bn a year to businesses by 2021 and Labour claims this is equivalent to employing 12,000 nurses, 10,000 police officers and 10,000 teachers full-time every year for a decade.

McDonnell said: “We have known for a long time that the Tories’ cuts to corporation tax have cost the exchequer billions and today we have laid bare what this means for our public services.  “Labour is calling on the government to reverse these deeply unfair tax giveaways and start properly investing in our vital public services.”

 


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