Overdraft fees are a massive revenue source for banks. In 2017, UK banks pulled in £2.4b ($3b USD) from overdrafts. In the U.S., banks with over $1b in assets collected $11.5b in overdraft and non-sufficient funds (“NSF”) fees. All 10 of the nation’s largest banks charge overdraft fees in excess of $30.
However, regulators in both countries are looking to reform this practice. In the U.S., senators Cory Booker and Sherrod Brown introduced legislation to crack down on overdrafts. The “Stop Overdraft Profiteering Act” would ban overdraft fees on debit card and ATM transactions, while also limiting fees stemming from checks and recurring payments.
The UK’s Financial Conduct Authority is going even further with a massive overhaul taking affect in April 2020. Banks will no longer be allowed to charge fixed daily or monthly overdraft fees at all – and must instead charge a simple annual interest rate. Bank materials and overdraft advertisements will need to clearly state the interest rate, with no hidden costs.
According to the FCA, the average cost of borrowing £100 through an overdraft would drop from £5 a day, to less than 20p.
Though these regulations still need to play out, one thing is clear – government officials want to give unfair overdrafts a proper sendoff…
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