Nationwide to double overdraft charges in reaction to new FCA rules

Nationwide said it has interpreted the Financial Conduct Authority’s clamp down on complex overdraft charging structures in the form of new rules requiring providers to show costs with a simple annual rate, by imposing a new single rate of 39.9 per cent across its adult current account range.

The regulator recently confirmed plans to shake up the “dysfunctional” overdraft market – including stopping banks and building societies from charging higher prices for unarranged overdrafts than for arranged overdrafts.

Nationwide has 7.9 million current account customers, not all of whom have an overdraft. Typically, each month, 800,000 Nationwide members will use an overdraft.

The move means costs will rise for two-thirds of Nationwide customers who borrow through an overdraft.

The 39.9 per cent rate is more than double the 18.9 per cent currently charged on overdrafts with its standard current account and in line with some of the most expensive credit cards available.

However, the mutual said it is confident that its changes, which take effect from November 11, will set a new benchmark for simplicity and transparency.

The new 39.9 per cent rate will apply across its Flexdirect, Flexplus and Flexaccount products. Customers have been able to get a rate of 18.9 per cent with Nationwide’s Flexaccount.

Nationwide is also removing all unarranged borrowing charges along with paid and unpaid transaction fees.

A £250 fee-free buffer which has been offered on Flexplus will also be removed.

The lender said the cost to operate Flexplus had become unsustainable.

Nationwide predicts that around 30 per cent of members are expected to see no change or a reduction in their borrowing cost and of those who will see their costs increase, most will see a rise of 20p per day or less.

A “small proportion” who borrow higher amounts more frequently will see a higher cost, Nationwide said, but it added that it will proactively contact them to explore alternative borrowing options.

Martin Lewis, founder of Moneysavingexpert.com, said: “On the surface, Nationwide’s new standard overdraft rate is shocking. Its 39.9 per cent APR is far more than a high street credit card – more even than the hideous rate that most store cards charge – and roughly similar to the rates charged for those with some of the worst credit scores, if they’re accepted for plastic.

“Yet while this looks like a horridly expensive change by the country’s biggest building society, in truth overdraft charges have been hideous for a long time.

“Nationwide currently charges 50p a day on major accounts, and per day charges – especially for those with smaller overdrafts – can have effective equivalent APRS higher even than the scourge that is payday loans. So the shock is more due to the fact the costs are now more transparent and easier to compare.

“And while Nationwide is just ahead of the pack in doing this, new rules by the regulator, the FCA, mean all overdraft providers will have to charge via APR, so comparisons will now be easier.”