Firstly, the CMA is forcing banks to be more transparent about the cost of overdrafts and unarranged overdrafts, in particular, which cost customers around £1.2 billion per year. 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.
The CMA will 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. The CMA 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. W
Secondly, the CMA are 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, will have to publish and clearly display the rates they will charge for doing so.
The CMA press release said ” 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.”
Responding to overdraft fee and business lending transparency remedies brought into effect by the Competition and Markets Authority (CMA) from today, Mike Cherry, National Chairman at the Federation Of Small Businesses (FSB), said “Small businesses have far more in common with consumers than with large corporations, and so deserve similar protections. From today, capping overdraft fees and enforcing proper publication of loan rates will help the many small business owners that get stung by unexpected charges and hiked repayments every year. Over the long-term, we need to look closely at how we make small firms aware of all the different finance options available to them.
“The ultimate aim is a future where Open Banking ensures all businesses receive fair treatment from the provider that’s right for them.”