The Financial Conduct Authority (FCA) has revealed plans to ban banks from charging high overdraft fees.
In the last year alone, banks have earned more than £2.4 billion from such fees.
The watchdog said it plans to ensure a more simple approach to borrowing, where the cost will be simple with a single interest rate. Prices will be advertised in a standard way and more will be done to help those financially struggling.
“Today we are proposing to make the biggest intervention in the overdraft market for a generation,” said Andrew Baily, the FCA’s chief executive.
“These changes would provide greater protection for the millions of people who use an overdraft, particularly the most vulnerable. It is clear to us that the way banks manage and charge for overdrafts needed fundamental reform.”
“We are proposing a series of radical changes to simplify the way banks charge for overdrafts and tackle high charging for unarranged overdrafts. These changes would make overdrafts simpler, fairer, and easier to manage,” he added.
Campaigners have said that the changes are not going far enough to help those that are “overdraft prisoners”.
However, Martin Lewis, founder of moneysavingexpert.com, said the move was a step in the right direction and that abolishing the overdraft fees was “a step in the right direction”.
“Many demonise credit cards, but debit cards are debit cards too when someone is overdrawn, and often they’re far costlier,” he said.
“Now even the regulator, thankfully, is starting to feel that it’s unfair to make society’s poorest pay for others’ banking – via hideous charges designed to entrap people in debt.”
“The FCA’s consultation is on the right track – though our main disappointment is it fails to impose the total cost cap, which it’s applying to other high-cost credit sectors like payday loans and rent-to-own.”
A survey by Which? revealed that the worst fees for unarranged overdrafts come from TSB, Royal Bank of Scotland and NatWest.