High Cost Credit Review: Further rules on overdraft pricing and competition remedies finalised

Following publication of final rules and a further consultation on a range of measures transforming the overdraft market in June 2019, the FCA has now issued further rules to complement the existing overdraft pricing measures, as well as minor changes to its competition remedy rules.

The final rules are largely unchanged from the proposals consulted on in June 2019 (see our previous blog post). Amendments in the final form relate mainly to the requirements on publication of pricing information; the changes aim to make the information clearer and more relevant for consumers.

What's changed in the final rules?

Scope

  • The proposed amendment to the definition of private bank in BCOBS 7 and 8 to align with the definition in the already finalised rules on overdraft pricing and repeat use is being implemented as consulted on. The FCA does, however, reiterate its view that the key deciding factor as to whether a brand meets its private bank criteria must continue to be the financial status of the customers themselves, as set out in its requirements on net asset minimum value.

Pricing information

  • Larger firms are already required to publish quarterly information about their current account services. These requirements have been expanded in BCOBS 7 rather than CONC and those with current account products over the threshold levels will need to publish in a prescribed format for each relevant product:
    • the range of representative APRs they advertise
    • the range of  arranged and unarranged overdraft interest rates charged and
    • the level of refused payment fees.
This means that all of the rules on the quarterly information that firms must publish on both current account services and overdraft pricing are now in BCOBS.
  • To avoid customer confusion, firms will be required to refer to the annual rate of interest in the display of pricing information and not to an EAR (which is the industry standard for this type of rate).
  • While the rules require pricing information at a product level, firms may provide more granular detail if they want to, by including it after or linked from the required table.
  • The requirement to publish median rates has been removed.
  • Firms are now able to exclude from reporting requirements:
    • accounts with a concessionary rate for customers in financial difficulty; and
    • any other accounts where the interest rate is individually negotiated.
  • The FCA makes it clear that firms:
    • should publish the rates charged to all customers, not just the rates for new accounts
    • must review rates applicable to all agreed overdraft facilities (on both new and existing accounts) in place each quarter, regardless of whether or not they are drawn on during the period
    • should include products that are no longer open for new business in the published information.
  • Although the product information to be made available via API under the CMA's Retail Banking Market Investigation Order 2017 does not currently include the pricing information required by the FCA's new rules, it encourages firms to do so. It will work with the CMA and the OBIE to help achieve this. The FCA's Open Finance work is looking at extending Open Banking-like data sharing to a wider range of financial products.
  • Those firms which have chosen to display FCA-required current account services information in branch are expected (but not required) to now also include information on overdraft pricing.
  • Displaying relevant pricing details at other points in the customer journey is not a rule requirement, but firms are encouraged to think about what changes they can make to customer communications and websites to raise customer awareness of overdraft costs.

Competition remedies

  • The consultation proposals to make minor changes to the rule on alerts auto enrolment to allow firms not to automatically enrol customers who have previously opted out of unarranged or refused payment alerts into arranged overdraft alerts have been made with a minor wording amendment to clarify the intended scope of the alert opt-out.

What's next?

The new rules on publication of pricing information will come into force on 6 April 2020, in line with the FCA's overdraft pricing rules.

The revised definition of private bank in BCOBS 7 (Information about current account services) comes into force immediately. BCOBS 8 (Tools for personal current account customers) comes into force on 18 December 2019. The revised private bank definition in BCOBS 8, the exclusion of currency accounts (as to which, see our previous blog post) and the alerts automatic enrolment will all be effective from that date.

The FCA will carry out a post-implementation review of its overdraft remedies package, but doesn't expect to start this until at least April 2021. It makes it clear that if its ongoing information monitoring or the post-implementation review shows that the remedies aren't having the desired effect, it will look at further rule changes or making more market interventions.

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