HSBC Introducing a 39.9% Single Overdraft Rate As Per New FCA Rules
06 Dec 2019
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- HSBC to increase overdraft rate to 39.9% in line with new FCA regulations
- HSBC to remove £5 daily fee on unarranged overdraft and introduce a £25 cushion on Bank Accounts and Advance accounts
- All banks could hike the overdraft rates by April 2020 as FCA seeks to fix the dysfunctional overdraft market
From March next year HSBC will introduce a 39.9% overdraft rate on customers. This will as much quadruple the overdraft rate the bank charges some customers. This is in response to the Financial Conduct Authority’s new regulations seeking to tame overdraft fees. The regulator wants to protect UK consumers. This comes after the FCA instituted new regulations on the transfer of high rate loans to another provider.
HSBC increasing overdraft rate to 39.9%
The bank’s move to introduce the overdraft rate is in response to new FCA regulations designed to end rip-off charges and simplify overdraft fees. However, this is likely to benefit a few customers as some will pay more than what they currently pay. Under the new rules, providers will have to show fees with a simple annual rate.
The bank has indicated that at least seven in ten overdraft customers will better off because of the changes. Nevertheless, HSBC has not offered more details on the number of users the interest rates will affect. The bank will remove the £5 daily fee on an unarranged overdraft and introduce a £25 interest-free buffer on some accounts. HSBC is introducing the buffer on Bank Account as well as Advance accounts. As a result, this means that they are giving a leeway for overdrawing the accounts.
HSBC wants to make overdraft structure easy to understand
Currently, HSBC's rates range between 9.9% and 19.9% on overdraft debt. However, the bank also imposes other fixed daily fees that can result in some customers paying a lot. HSBC’s UK head of lending and payments Madhu Kejriwal stated that the simplifying of the structure is for easier understanding. He added that it will make the process transparent and offer tools to help customers in making informed financial decisions.
The FCA introduced new regulations in June, banning daily and monthly overdraft charges. The regulations require banks to start charging a single overdraft rate from April 2020. As a result, this will make overdraft debt cheap compared to loans, credit cards, as well as other forms. However, there are concerns that the banks might hike authorized overdraft charges to recoup lost revenue from unauthorized overdraft charges.
Banks increasing overdraft rates
In July, Nationwide increased its overdraft rate to 39.9%, and other high street lenders are likely to follow the trend. Also, Marks & Spence will equally more than double the current rate of 15.9% to 39.9% from next year. However, the interest-free part of the customer's overdraft will grow to £250 from the current £100.
The FCA claims that the new regulations will fix the dysfunctional overdraft market. The unarranged overdraft fees have trapped customers into paying high rates than what payday loans charge. Under the new FCA dispensation, all unarranged overdraft costs should be the same. The regulator acknowledges that banks could increase their overdraft fees because of the new rules.