Unarranged overdraft fees used to be one of the most profitable — and least transparent — charges UK banks levied. Since 2020, the rules changed substantially.
The rule change that took effect in April 2020
Under the FCA's CONC 5C rules, which took effect in April 2020, banks must apply the same interest rate structure to unarranged overdrafts as they do to arranged ones — banks are no longer allowed to charge a higher rate simply because you went into your overdraft without prior arrangement. The rules also banned flat daily or monthly unarranged overdraft fees outright.
What this means in practice
Before this rule, some banks charged eye-watering flat fees — sometimes more than a payday lender's effective APR — for going even slightly over an agreed limit without prior arrangement. Since 2020, any unarranged overdraft charge must be priced on the same basis as an arranged one for that account, generally as a simple annualised interest rate applied to the amount borrowed, not a fixed daily penalty regardless of the amount.
The Consumer Duty adds a vulnerability check
The FCA's Consumer Duty, which came fully into force in 2023, adds a further obligation: firms must actively assess and respond to customer vulnerability, including in how overdraft charges are applied. If you've disclosed a vulnerability — financial hardship, a health condition, or another relevant circumstance — your bank has an obligation to consider that when handling repeated overdraft charges, not simply apply the standard rate mechanically.
How to check if you're being overcharged
- Compare the interest rate you're charged for unarranged overdraft use against the rate for arranged use on the same account — they should be identical.
- Look for any flat daily or monthly unarranged fee on your statements — this should not exist post-2020 in this form.
- If you've previously told your bank about a vulnerability, check whether repeated overdraft charges since then reflect any adjustment.
What this means practically
- Pull your recent statements and compare the unarranged vs. arranged overdraft rate — they must match under CONC 5C.
- Any flat daily/monthly unarranged fee found on a post-2020 statement is worth challenging directly with your bank.
- If you've disclosed a vulnerability, your bank has a Consumer Duty obligation to factor that into how it handles overdraft charges.
- If your bank won't correct an identified overcharge, escalate to the Financial Ombudsman Service.
Related Kibbo Tools
Sources
- Financial Conduct Authority — Changes to overdraft charges. fca.org.uk
- FCA Handbook — CONC 5C.2. handbook.fca.org.uk