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Could this be the beginning of the end for rip-off overdrafts and credit?

The Financial Conduct Authority is reviewing the 'high cost' credit market, with everything from catalogue loans to overdraft fees in their sights.

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The City finance regulator, the Financial Conduct Authority (FCA), is launching an investigation into high cost credit, their investigation will look at:

  • Arranged and unarranged overdrafts
  • Payday loans
  • Home-collected credit
  • Catalogue credit
  • Rent-to-own
  • Pawn-broking
  • Guarantor and logbook loans

Could a money transfer card be better than an overdraft?

Money transfer cards will let you transfer money into your current account, many charge no interest more than three years.

Compare cards

What is the FCA doing?

At the moment, nothing more than ‘investigating’, but FCA investigations do have past form of shaking up the consumer credit industry.

Last year the FCA clamped down on payday lenders, capping the cost of credit at 100% APR, meaning payday loan customers will never need to repay more than twice the amount they borrowed.

Overdrafts – holding back competition?

A previous report by the Competition and Markets Authority (CMA) found poor price transparency with overdrafts were holding back competition in the banking sector.

The FCA are going to pick this up and see if overdrafts are working from a consumer perspective, promising to use their “full range of powers.”

High-cost credit – hurting consumers?

The FCA are looking at all high-cost products and asking “whether they cause detriment” to consumers.

They also aim to investigate specifically which consumers are hurt most by the costs of expensive credit.

Payday loan price cap – are people turning to loan sharks?

The FCA’s payday loan price cap came into force on 2 January 2015, and they planned to review the cap in the first half of 2017.

Specifically, they will look if there is evidence of consumers turning to illegal money lenders directly as a result of being excluded from high cost credit because of the price cap.

Notoriously difficult to understand what overdrafts actually cost

Richard Neudegg, head of regulation at uSwitch.com says:

“Fees for arranged overdrafts remain a law unto themselves – and can be more expensive than spending on a credit card or taking out a loan.

“It is made all the harder for consumers as it’s notoriously difficult to understand what overdrafts actually cost. This is partly because the charges used by different banks vary but also because people don’t know how long or how much of their overdraft they’ll need each month.

“Given that millions of people rely on their overdraft every month just to make ends meet, we urge the FCA to look closely at the stealthy fees being imposed by the banks.”

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Alternatives to overdrafts

If you have a stubborn to shift overdraft that is accumulating fees and interest charges a money transfer card could help.

Money transfer cards are a credit card that allow you transfer your credit to current account.

To transfer money you will need to pay an upfront transfer fee which will typically be around 2-4% of the total amount of money transferred.

Often money transfer credit cards include a 0% interest period where you can avoid paying any interest charges, similar to balance transfer cards.

Though don’t forget that to keep the 0% interest offer, you need to meet the minimum monthly repayments.

Could a money transfer card be better than an overdraft?

Money transfer cards will let you transfer money into your current account, many charge no interest for more than three years.

Compare cards

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