CMA and FCA 'working together' on overdraft rules

Out-Law News | 13 Sep 2019 | 3:02 pm | 2 min. read

The Competition and Markets Authority (CMA) is proposing to repeal its rules requiring banks to alert their customers before charging them for overdrafts to reflect new Financial Conduct Authority (FCA) requirements.

The CMA is of the opinion that the FCA's rules on overdrafts amount to a 'change of circumstances' justifying the removal of part 6 of its 2017 Retail Banking Market Investigation Order (67-page / 684KB PDF). It is proposing to do so from 18 December 2019, the date that the FCA's rules come into force.

The CMA opened a review into part 6 of the order in July, shortly after the FCA confirmed its new rules on overdrafts. It sought feedback from the banking industry, and has now published non-confidential versions of the banks' responses along with its provisional decision (26-page / 414KB PDF) and proposed variation order (6-page / 129KB PDF).

Barber Andrew

Andrew Barber


It's encouraging to see how closely the CMA and FCA work within the retail banking sphere.

Financial regulation expert Andrew Barber of Pinsent Masons, the law firm behind Out-Law, said: "It's encouraging to see how closely the CMA and FCA work within the retail banking sphere".

"Also encouraging is the level of support which part 6 appears to have from major UK bank respondents, but the respondents also indicate that they would like a more extensive review both of part 7, and perhaps of the entire Retail Banking Market Investigation Order. Whether the competitive landscape in UK retail banking has changed enough to justify such a review could depend on whether the number of competitors or their market share is taken into account," he said.

The CMA's Retail Banking Market Investigation Order came into force in February 2018. The order set out a number of remedies designed to address the competition problems identified by the CMA in its retail banking market investigation, affecting both personal current account provision and small and medium-sized enterprise banking provision.

Part 6 of the order requires providers of personal current accounts to alert their customers to situations in which they could take action to avoid charges for the use of an overdraft, either by mobile text message or by way of a notification in a mobile banking application. Part 7, which banks have also indicated they would like the CMA to review, deals with the monthly maximum charge a current account provider can impose on a customer for exceeding or attempting to exceed a pre-arranged overdraft.

The FCA announced new rules governing overdrafts in June. Once the new rules are fully in force, banks will be required to price overdrafts at an annual percentage rate (APR) of interest rather than at a fixed daily or monthly charge, to help consumers compare them to other credit products. In addition, banks will no longer be able to charge higher prices on unarranged overdrafts than on arranged overdrafts.

Banks will also be required to do more to identify customers who are showing signs of financial strain or are in financial difficulty, and to put in place a strategy to reduce repeat overdraft use. They will also have to limit fees for refused payments so that they "reasonably correspond" to the cost to the bank of refusing that payment.