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UK: From August 2, important banking changes come into force

Staff Writer |
From today, two important changes come into force in the UK to make it easier to know what charges customers might face, as part of the Competition and Markets Authority’s (CMA) shake up of the banking industry.

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"First, we’re forcing banks to be more transparent about the cost of overdrafts and unarranged overdrafts, in particular, which cost customers around 1.2 billion pounds per year," the CMA said.

"As of today, all banks must have set, and publicised, a ceiling (or cap) on their unarranged overdraft charges, in the form of a monthly maximum charge (MMC). This is the maximum that the bank can charge a customer during any given month, taking together all types of unarranged overdraft charges.

"We’re pleased to see some banks have already responded by introducing a cap earlier than required to – or doing away with these charges altogether. But those that have not must now do so.

"We’ll be building on these changes in January next year, when banks will be required to alert their customers if they are about to go into an unarranged overdraft, so that customers have a chance to avoid doing so.

"We also welcome the Financial Conduct Authority’s (FCA) work on high-cost credit, including a further look at unarranged overdrafts, announced earlier this week. This builds on our work and questions whether there is a place for this type of borrowing in modern banking markets.

"Our investigation concluded that if banks were made to be more transparent about how they charge their customers, this would put them under pressure to bring charges down and would help customers avoid unnecessary charges.

"While there is still some way to go to ensure all customers get a better deal, we’re encouraged to see improvements are starting to happen.

"Second, we’re requiring banks to be clearer about the cost of borrowing for small and medium-sized businesses (SMEs).

"From today, all providers of unsecured loans and overdrafts to SMEs, for values up to 25,000 pounds, will have to publish and clearly display the rates they will charge for doing so

"And we have asked them to make it easier by using similar measurements (eg annual percentage rates (APRs)) to those used on personal loans and credit cards.

"If anything, we think small businesses face greater problems than personal current account holders – not least the lack of transparency of information on offer.

"There are many reasons why SMEs do not shop around – which our probe showed is the best way of getting a good deal – and the lack of easy-to-find information contributes to this. We also know that, when it comes to lending, small businesses often need quick decisions.

"They do not want to speak to lots of different providers all asking for different information.

"Transparent information on lending rates, published in an accessible format, will make it far easier for them to understand the deal they’re currently getting, and quickly compare it with other lenders to see if they could do better elsewhere."

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