And it also plans to introduce measures to ensure that overdraft prices are advertised in a standard way using APR to allow customers to compare more easily.
Banks will also be required to do more to help customers showing signs of financial difficulty reduce their overdraft use.
“Today we are proposing to make the biggest intervention in the overdraft market for a generation,” said FCA chairman Andrew Bailey.
“These changes would provide greater protection for the millions of people who use an overdraft, particularly the most vulnerable. It is clear to us that the way banks manage and charge for overdrafts needed fundamental reform.”
Citizens Advice has praised the move after their research found that 30,000 people contacted them in the last 12 months about bank and building society overdrafts.
It also found that one in three people in problem debt paid overdraft fees, compared to just 17 per cent of all UK adults.
However, Gillian Guy, chief executive of Citizens Advice, has called for a cap on doorstep loans to stop people from turning to unscrupulous high-cost lenders.
“People who are financially insecure have been punished by unarranged and complicated overdraft fees for far too long,” she said. “We have long called for a clampdown on these indefensible charges. It will help the thousands of people who come to see us with overdraft problems from staying stuck in debt.”
Debt charity StepChange found that just under half (47 per cent) of their clients had an overdraft at the time they contacted the charity with the average overdraft debt amounting to £1,523.
“We are extremely pleased to see the FCA’s plans for robust new rules on unauthorised overdraft charges,” said head of policy Peter Tutton. “These should help to disrupt the toxic “debt spiral” effect that overdrafts can create, trapping people in a persistent cycle of overdraft debt. Requiring firms to intervene earlier and more meaningfully when their customers show repeated use of overdrafts is hugely important, too.”
