Banks, since April 6, are now only able to charge overdraft users defined annual interest rates set forward by the regulator. As that deadline has now passed, people using their overdrafts should start to see evidence for the new rates.
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However, worrying new findings from Yolt, the money management app, reveals that a large portion of the population may be unprepared.
Recent research from the company revealed that while 60 percent of UK customers use their bank’s overdraft facilities, 42 percent of said users are unaware of what they’re being charged for it.
On top of this, 38 percent of consumers announced that they had not been contacted by their bank regarding the changes.
This could result in a nasty shock for some customers as many overdrafts will see their interest rates hiked up to nearly 40 percent.
These changes couldn’t have come at a worse time for many people.
Coronavirus has impacted many people’s finances and it is unlikely that consumers will be able to handle further financial hits.
Pauline Van Brakel, the Chief Product Officer at Yolt commented on this: “Now, perhaps more than ever is a time for people to be closely managing their finances, to avoid any unwelcomed charges or fees.
“The hike in overdraft interest rates is a disappointing and unwelcome sting for many people who are already feeling the financial impact of COVID-19.
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“It’s worrying to see a large proportion of people are unaware that their overdraft fees may increase, some close to 40 percent, and I suggest people use the coming days to double check these potential changes with their bank, to assess how it may impact them.”
The alterations to overdraft interest rates is not the only change that the FCA has put forward however.
As coronavirus continued to impact the economy, the regulator made further changes to protect people during this challenging time.
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In early April, the FCA proposed that customers with arranged overdrafts on their main current accounts should have up to £500 charged at zero interest for three months, so long as they are struggling with financial difficulties.
This new ruling has been enforceable since yesterday (14 April) and it should provide relief for worried households.
Pauline continued to analyse this welcome change but also provided some cautionary thoughts: “It’s good to see more being done to support those whose finances are hit by the coronavirus, but it’s important that the exact terms of these changes are clearly communicated to consumers.
“While a payments freeze may seem attractive, consumers should look very carefully at the terms and conditions, to determine whether it is truly in their best interest.
“Now, more than ever, is a time for people to be closely managing their finances, to avoid any unwelcome charges or fees.”
Overdrafts are not the only financial element to beoffered temporary relief.
The FCA also made changes to credit card and loan rules, while ensuring that credit ratings will not beaffected.
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