UK challengers Starling Bank and Monzo are changing their overdraft policies effective April 2020 which will see customers with bad credit scores charged higher fees, This Is Money reports.
Starling is set to add 25% or 35% interest rate charges on overdrafts depending on customers’ credit scores, having previously only charged a flat 15% rate. The previous week Monzo said it would be replacing its 50p per day fee on all borrowing over £20 with a set of interest rate charges ranging from 19% to 39%. Monzo’s £20 fee-free buffer will also disappear as part of the changes.
The moves follow a push by the Financial Conduct Authority (FCA) which ordered UK banks to stop marking overdrafts as “available” funds to customers to make it clear to consumers that overdrafts are a form of debt and not their own money.
“Unfortunately too many people fall into the trap of believing that’s their money rather than a debt,” FCA director Christopher Woolard said on Radio 4’s Today Programme.
Incumbent banks Nationwide and HSBC, as well as sibling banks First Direct and M&S Bank, have all increased their interest rate charges to 39.9%. In some cases, First Direct and M&S Bank customers will now be paying almost triple what they are paying now, with overdraft fees jumping up by 24%.
Starling is currently the cheapest option, resisting the urge to go as high as 39%. “The new pricing structure is designed to reflect the true cost to us of offering overdrafts and to ensure that we can continue offering the best current account possible,” says Starling’s CEO Anne Boden.