1The purpose of this chapter is to:

1. (1)

   require firms to implement and maintain overdraft charging structures that are simple, transparent and capable of easy comparison; and

2. (2)

   forbid firms from obliging a customer to pay a rate of interest for an unarranged overdraft which exceeds the rate of interest for an arranged overdraft that is relevant to that customer.

1. (1)

   1The purpose of CONC 5C.2.1R is to permit a firm to impose an arranged overdraft charge or an unarranged overdraft charge on a customer only if the charge takes the form of an annual rate of interest. Consistent with this, a firm is forbidden from imposing on a customer a fee for making available an arranged overdraft facility (unless the amount of credit made available under the facility exceeds £10,000).

2. (2)

   CONC 5C.2.1R does not affect an arranged overdraft charge or an unarranged overdraft charge, liability for which accrued before the date on which CONC 5C.2.1R came into force. CONC 5C.2.1R does affect, however, an arranged overdraft charge or an unarranged overdraft charge liability for which accrued on or after the date on which CONC 5C.2.1R came into force, irrespective of whether the arranged overdraft facility was granted or the agreement for the personal current account was made before or after the date on which CONC 5C.2.1R came into force.

3. (3)

   There has to be a single, uniform contractual rate of interest in respect of an individual customer that applies to any amount of arranged overdraft balance (other than any part of the balance that is free). This means that a firm may not have a graduated overdraft charging structure, where different rates of interest apply to specified tiers or bands of arranged overdraft balance, even if a higher band or tier is described as being intended for occasional emergency borrowing, or where lower or higher rates are contingent on certain behaviour, such as making or maintaining certain amounts or frequencies of deposits. A firm should not, for instance, calculate an arranged overdraft charge using a rate of interest of 3 per cent per annum if the customer borrows £100 by way of arranged overdraft, but use a rate of interest of 5 per cent per annum if the customer borrows £300. A firm may, however, vary a rate of interest using a contractual power of variation if it is fair, valid and enforceable.

4. (4)

   Similarly, there has to be a single, uniform contractual rate of interest in respect of an individual customer that applies to any amount of unarranged overdraft balance (other than any part of the balance that is free), although this rate of interest may be lower than that which applies to an arranged overdraft balance.

5. (5)

   A firm is not prevented from providing in the terms and conditions of the overdraft that no interest is payable in respect of arranged overdraft balances or unarranged overdraft balances of up to specified amounts (sometimes described as “fee-free amounts” or “buffer zones”) where permitted by CONC 5C.2.1R. The purpose of CONC 5C.2.1R(7) is to prevent firms from offering fee-free amounts or buffer zones that are free only in certain circumstances. An example of a buffer zone that is not permitted is where no interest is payable if an unarranged overdraft balance does not exceed the upper threshold of the buffer zone, but where interest becomes payable in respect of the entire balance (including the part of the balance in the buffer zone) if the customer exceeds the threshold.

6. (6)

   A firm is not prevented from waiving or reducing overdraft charges (in whole or in part) in appropriate circumstances (for example, where the firm is treating a customer with forbearance in line with other rules in this sourcebook).

7. (7)

   CONC 5C.2.1R does not prohibit the level of the single, uniform contractual rate of interest from differing from customer to customer, or between personal current accounts for the same customer.

8. (8)
   1. (a)

      The definitions of an arranged overdraft charge and an unarranged overdraft charge are broad.

   2. (b)

      These definitions capture any charges that arise because a customer has used an overdraft, or that are triggered by - or the size of which are affected by - the fact that the personal current account has entered, remains in, or extended, a debit position.

   3. (c)

      If the agreement provides that a charge is payable by a customer in exchange for the creation or continuation of an arranged overdraft facility, whether or not the customer in fact uses the facility, this charge is also caught by the definition of an arranged overdraft charge unless the facility has a pre-agreed limit in excess of £10,000. A charge of this sort is often referred to as a “facility fee” and payable periodically, for example annually.

   4. (d)

      The definitions of an arranged overdraft charge and an unarranged overdraft charge are not limited to charges that are described as financial consideration for the provision of credit. They could include, for example, a charge that is expressed as being referable to the execution of the payment transaction, if the charge is payable only where the transaction results in the account being in an overdrawn position or remaining in such a position. A charge for a payment transaction that is payable irrespective of whether or not the current account has a credit balance or a debit balance is not, however, caught by these definitions.

   5. (e)

      The definitions also do not include charges for operating or maintaining a personal current account (as distinct from charges for granting or continuing to make available an arranged overdraft facility in connection with the account), provided that the incidence and amount of the charges are not affected by whether or how much the customer uses an overdraft. A monthly account charge could be an example of such a charge.

9. (9)

   CONC 5C.2 requires firms to use only a rate of interest expressed as a percentage applied on an annual basis to the relevant balance of arranged overdraft or unarranged overdraft. If interest is compounded, firms are free to choose the intervals at which they add arranged overdraft charges and unarranged overdraft charges to the principal balance, provided that the same compounding frequency is used in relation to the customer’s arranged overdraft and unarranged overdraft in respect of the same personal current account.

10. (10)

    Firms are reminded of the obligation in CONC 3.5.3R(1) to include a representative example (including the representative APR) in a financial promotion that indicates a rate of interest or an amount relating to the cost of credit. Firms are also reminded of the obligation in CONC 3.5.7R(1) to include in a financial promotion a representative APR if the financial promotion states or includes certain matters. Firms are referred to the guidance in CONC 3.5.6G(2) in relation to how the rate of interest in CONC 3.5.5R(1) should be calculated for the purposes of the representative example in CONC 3.5.3R(1).

11. (11)

    In CONC 5C.2.1R(1)(b), “impose” an arranged overdraft charge or an unarranged overdraft charge includes creating the contractual right to receive it, and relying on, or enforcing, the contractual right or purporting to do so.

1. (1)

   1The purpose of CONC 5C.3.1R is to forbid firms from charging a customer who borrows a particular amount using an unarranged overdraft facility more than they would have had to pay (disregarding any fee-free amount) if they had borrowed an equivalent amount using their arranged overdraft facility (or, if they do not have an arranged overdraft facility, the highest amount that would have been payable (disregarding any fee-free amount) by a not insignificant number of other customers if they had borrowed an equivalent amount under an arranged overdraft facility connected with a comparable personal current account).

2. (2)

   In CONC 5C.3.1R(1)(b), CONC 5C.3.1R(3)(d)(ii) and CONC 5C.3.2R, “impose” an unarranged overdraft charge includes creating the contractual right to receive it, and relying on, or enforcing, the contractual right or purporting to do so (“imposes” and “imposed” should be read accordingly).

3. (3)

   CONC 5C.3.1R does not affect an unarranged overdraft charge, liability for which accrued before the date on which CONC 5C.3.1R came into force. CONC 5C.3.1R does affect, however, an unarranged overdraft charge liability for which accrued on or after the date on which CONC 5C.3.1R came into force, irrespective of whether the agreement was made before or after the date on which CONC 5C.3.1R came into force.

4. (4)

   A firm is not prevented by CONC 5C.3.1R from charging a customer who borrows using an unarranged overdraft less than it charges the customer for using an arranged overdraft facility or from not charging for such borrowing.

5. (5)

   The rules in CONC 5C.3.1R (other than CONC 5C.3.1R(1)(a)) and CONC 5C.3.2R are made pursuant to section 137C of the Act.

1. (1)

   1A firm that makes changes as described in CONC 5C.4.1R should, in accordance with Principle 6, have due regard to the interests of existing customers and treat them fairly. An example of such a change is a change in a customer’s overdraft limit.

2. (2)

   Firms are reminded that the purpose of the rules in CONC 5D is to require firms to identify and provide appropriate assistance to customers (including existing customers at the time CONC 5C becomes applicable) with a pattern of repeat overdraft use.

1. (1)

   1The definition of “personal current account” refers to the definition of a “payment account” under the Payment Accounts Regulations, that is: “an account held in the name of one or more consumers through which consumers are able to place funds, withdraw cash and execute and receive payment transactions to and from third parties, including the execution of credit transfers, but does not include any of the following types of account provided that the account is not used for day-to-day payment transactions: savings accounts; credit card accounts where funds are usually paid in for the sole purpose of repaying a credit card debt; current account mortgages or e-money accounts”. The FCA has issued guidance on this definition: see ‘FG16/6 – Payment Accounts Regulations 2015’.

[Note: https://www.fca.org.uk/publications/finalised-guidance/fg16-6-payment-accounts-regulations-2015-definition-payment-account]

1. (2)

   The definition of excluded account captures personal current accounts where there cannot be a pre-arranged overdraft facility, there cannot be an unarranged overdraft to which interest or charges apply and charges for refusing a payment due to lack of funds cannot arise.