UK Overdraft Charges: How the Rules Work

Overdraft charges in the United Kingdom are governed by a specific set of rules introduced by the Financial Conduct Authority (FCA). These rules, which took effect in stages from December 2019 and April 2020, changed how banks and building societies are permitted to price overdrafts, how they must communicate with customers, and what obligations they have toward people who use overdrafts frequently.

This guide explains what those rules are, how the system of alerts and protections operates, and what regulatory frameworks sit behind it all. It covers arranged and unarranged overdrafts, the alert system, repeat use obligations, and the formal complaints and debt protection processes that exist under UK law.

This guide does not provide financial advice. It explains how the system works based on published rules and regulations.

• Single Interest Rate: Since 6 April 2020, UK banks and building societies must charge overdrafts using a single annual interest rate (APR/EAR). They cannot charge fixed daily or monthly fees for arranged overdraft borrowing.
• Unarranged Fees Capped: Unarranged overdrafts cannot be charged at a higher rate than arranged overdrafts.
• Alerts: From 18 December 2019, banks have been required to automatically enrol personal current account holders in an overdraft alert system.
• Repeat Use Protections: Banks must identify and support customers who show patterns of repeat overdraft use.

These rules are set by the FCA and apply to personal current accounts across England, Wales, Scotland, and Northern Ireland.

The FCA regulates overdrafts under the Financial Services and Markets Act 2000, primarily through two parts of its Handbook: the Consumer Credit sourcebook (CONC) and the Banking: Conduct of Business sourcebook (BCOBS).

• CONC 5C deals with overdraft pricing, with the pricing rules taking effect from 6 April 2020.
• CONC 5D deals with repeat use obligations, which came into force from 18 December 2019.
• BCOBS 8 covers competition remedies, including the overdraft alert system, which also commenced on 18 December 2019.

Overdrafts are generally treated as a form of regulated credit under the Consumer Credit Act 1974. However, overdrafts are a special case within that framework, and many of the standard formality and rights provisions of the CCA do not apply to overdrafts in the same way as they do to other credit agreements, due to specific regulatory exemptions and determinations. The extent to which particular CCA rights apply to a given overdraft arrangement may vary depending on the type and terms of the agreement.

Pricing Rules

From 6 April 2020, the core pricing rule is that banks must use a single annual interest rate to charge for arranged overdrafts. Fixed daily or monthly fees for arranged overdraft borrowing are no longer permitted. If a customer uses an unarranged overdraft, the bank must charge the same rate as for an arranged overdraft, or a lower rate. Charging more for unarranged borrowing than for arranged borrowing is prohibited under FCA rules (CONC 5C.2). If a firm imposes a charge for unarranged overdraft borrowing at a higher rate than arranged borrowing, the obligation to pay the excess is unenforceable and redress may be due.

As part of the same FCA overdraft pricing package, firms are not permitted to charge fees for arranging or maintaining an overdraft facility of up to £10,000. For arranged overdraft facilities exceeding £10,000, firms may charge a fee.

Interest-free buffers are permitted. Where a bank offers an interest-free buffer, it must remain interest-free even if the customer exceeds the buffer amount.

A common representative rate charged by several major UK banks for arranged overdrafts is 39.9% EAR (variable). This is a representative rate, meaning at least 51% of customers at those banks receive it. However, this is not a universal figure. Some customers may be charged higher rates based on individual risk assessment, and rates at other institutions can differ significantly — ranging from considerably lower at some private banks to higher at others.

Alert System

From 18 December 2019, banks must automatically enrol personal current account customers in an overdraft alert system under BCOBS 8.4. Alerts must be sent in the following circumstances:

• When a customer enters an arranged overdraft.
• When a customer enters or attempts to enter an unarranged overdraft.
• When an attempt is made to overdraw without any prior arrangement in place.
• When the customer moves between pricing tiers where significantly different costs apply.

Under BCOBS 8.4.12R, the arranged overdraft alert for scheduled payments must be sent by a set time on the day the obligation arises (the rule specifies no later than midday). Under BCOBS 8.4.13R, the unarranged overdraft alert for scheduled payments must be sent earlier on the same day (the rule specifies no later than 10:00 am). For non-scheduled transactions, alerts must be sent as soon as practicable.

Customers can opt out of arranged overdraft alerts. However, they cannot opt out of alerts relating to attempts to overdraw without a prior arrangement. Under BCOBS 8.4.3R(3), each holder of a joint personal current account must be separately enrolled in the alert system.

Repeat Use Obligations

From 18 December 2019, banks must identify customers showing "repeat use" patterns of overdraft borrowing under CONC 5D. The FCA defines repeat use as "a pattern of overdraft use where the frequency and depth of use may result in high cumulative charges that are harmful to the customer or indicate that the customer is experiencing or at risk of financial difficulties."

When a repeat use pattern is identified, banks must engage with the customer and present options for reducing overdraft use (CONC 5D.3.2R). In some circumstances, banks may need to suspend or remove the overdraft facility — but they must not do so if this would cause financial hardship. Banks are required to consider individual circumstances and essential living expenses before taking such action.

Under CONC 5D.5, firms are required to submit their repeat use strategies to the FCA and to report on effectiveness after 6 months and again after 12 months. These reports must include the number of repeat users and the total size of overdraft balances at the start and end of each reporting period. The FCA uses this data to monitor ongoing compliance.

Unarranged Overdraft Charges in Practice

The 2020 reforms largely removed the old fixed-fee charging model for unarranged overdrafts by requiring a single interest rate and banning fixed fees for overdraft borrowing. There is no universal FCA rule requiring all firms to set a specific "monthly cap" on unarranged overdraft charges. In practice, some banks have set their own internal limits on monthly unarranged charges, while others have removed unarranged overdraft facilities entirely. The approach varies by provider.

Some banks also charge a refused payment fee when a payment such as a Direct Debit is returned unpaid. Under FCA guidance, such fees are still permitted but must be cost-reflective and not profit-making. The specific amounts charged vary by provider and may change over time.

The following are the principal rules and thresholds established by FCA regulations and related legislation.

Pricing (CONC 5C, from 6 April 2020):

• Overdrafts must be charged using a single annual interest rate (APR/EAR).
• No fixed daily or monthly fees for arranged overdraft borrowing.
• Unarranged overdraft rates must not exceed the arranged overdraft rate.
• As part of the FCA pricing package, no arrangement or maintenance fees for overdraft facilities up to £10,000; fees may apply above £10,000.
• Interest-free buffers must remain interest-free if exceeded.

Alerts (BCOBS 8.4, from 18 December 2019):

• Automatic enrolment for all personal current account customers.
• Arranged overdraft alert: by set time on scheduled payment day (BCOBS 8.4.12R specifies no later than midday).
• Unarranged overdraft alert: by set time on scheduled payment day (BCOBS 8.4.13R specifies no later than 10:00 am).
• Opt-out permitted for arranged overdraft alerts only.
• Joint account holders must each be separately enrolled (BCOBS 8.4.3R(3)).

Repeat Use (CONC 5D, from 18 December 2019):

• Banks must identify repeat use patterns.
• Must engage with customer and present options to reduce use (CONC 5D.3.2R).
• Must not suspend or remove overdraft facility if doing so would cause financial hardship.
• Must report to FCA on strategy effectiveness at 6-month and 12-month intervals (CONC 5D.5).

Complaints (Financial Ombudsman Service):

• A bank must be given at least 8 weeks to resolve a complaint.
• If the bank issues a final response before 8 weeks, the complaint can be referred to the Financial Ombudsman Service (FOS) at that point.
• If no final response is received within 8 weeks, the complaint can be referred to FOS.
• The FOS can adjudicate complaints about overdraft affordability and irresponsible lending, and the service is free for consumers.

Breathing Space (Debt Respite Scheme, England and Wales only):

• Standard breathing space lasts up to 60 days.
• During breathing space, creditors must not require the debtor to pay interest, fees, or charges, and must stop enforcement action and contact requesting payment.
• A mid-point review is required.
• A person cannot enter standard breathing space if they have had one in the previous 12 months.
• Mental health crisis breathing space lasts for the duration of treatment plus 30 days, with no limit on frequency. An Approved Mental Health Professional must provide evidence.

Private Bank Exemption:

• Private banks where over half of personal current account customers have net assets of £250,000 or more (excluding primary residence, insurance rights, and pension benefits) are exempt from the CONC 5C pricing rules and CONC 5D repeat use obligations. The extent to which private banks are also excluded from BCOBS 8 competition remedies may depend on the specific provisions; they remain subject to refused payment fee guidance and overdraft facility disclosure rules.

• "All banks charge 39.9% for overdrafts." This is not accurate. While 39.9% EAR is a common representative rate at several major UK banks, it is not universal. Representative rate means at least 51% of customers at that bank receive the advertised rate, but others may be charged more based on individual assessment. Rates at other institutions can be materially different.
• "Unarranged overdraft charges are always higher than arranged ones." This was often the case before the April 2020 rule change, but it is no longer permitted. Since 6 April 2020, banks must charge the same or a lower rate for unarranged overdrafts compared to arranged overdrafts. Under FCA rules, the obligation to pay any excess over the arranged rate is unenforceable.
• "There is a universal monthly cap on unarranged overdraft fees." There is no FCA rule requiring a single standardised monthly cap. The 2020 reforms removed the old fixed-fee model by requiring a single interest rate. Individual banks may set their own internal limits, and some have removed unarranged overdraft facilities entirely.
• "Breathing Space applies across the whole UK." The Debt Respite Scheme (Breathing Space) applies in England and Wales only. Scotland operates a separate Debt Arrangement Scheme (DAS). Northern Ireland is not covered by either scheme.
• "Banks must freeze all interest during Breathing Space." The regulations state that creditors must not require the debtor to pay interest, fees, or charges during the breathing space period. There is a distinction between the accrual of interest on a bank's systems and the obligation on the debtor to pay it. The debtor is protected from being required to pay, but depending on a firm's systems, interest may technically continue to accrue in the background. The practical protection is that the debtor cannot be pursued for those amounts during the breathing space period.
• "Banks can simply remove your overdraft without warning." Under the repeat use rules (CONC 5D), banks may in some circumstances suspend or remove an overdraft facility, but they are specifically prohibited from doing so if it would cause financial hardship. They must consider individual circumstances and essential living expenses first.

• Basic bank accounts are offered by nine designated institutions (Barclays, Co-operative Bank, HSBC, Lloyds Banking Group, Nationwide, NatWest Group, Santander, TSB, and Virgin Money) to customers who are ineligible for standard current accounts. These accounts are fee-free for standard operations and have no overdraft facility. Because overdraft alerts relate to overdraft events, accounts without overdraft facilities will not generate the transactions that trigger alert obligations.
• Credit unions are also excluded from certain overdraft alert requirements under the FCA's rules (BCOBS 8.1.2R).
• Private banks meeting the net assets threshold (over half of personal current account customers with net assets of £250,000 or more, excluding primary residence, insurance rights, and pension benefits) are exempt from the CONC 5C pricing rules and CONC 5D repeat use obligations. The scope of their obligations under BCOBS 8 competition remedies may vary depending on how the FCA's private bank provisions apply to specific BCOBS requirements. They remain subject to refused payment fee guidance and overdraft facility disclosure rules.
• Forbearance and financial difficulty: Where a customer is in financial difficulty and receiving forbearance, firms may continue to charge interest during payment deferrals. Under CONC 7.3.17R (as amended), firms must reduce, waive, or cancel interest and charges to the extent necessary to ensure that the debt level does not rise during a sustainable repayment arrangement. Any interest that has been waived cannot be re-imposed at a later date. The precise application of this requirement in the context of overdraft forbearance may depend on the specific FCA provisions that apply to the arrangement in question.
• Geographic variation in debt protection: The Breathing Space scheme operates in England and Wales. Scotland has the Debt Arrangement Scheme. Northern Ireland does not currently have an equivalent scheme based on the sources reviewed.
• Joint accounts: Each holder of a joint personal current account must be separately enrolled in the overdraft alert system. This is a distinct requirement under BCOBS 8.4.3R(3).

The FCA's overdraft reforms were designed to simplify overdraft pricing and reduce the cost to frequent overdraft users. The pricing rules took effect on 6 April 2020; the alert and repeat use rules came into force on 18 December 2019. According to FCA analysis published alongside these reforms, approximately 70% of overdraft users were estimated to be better off or see no change in cost as a result. A subsequent FCA evaluation published in April 2023 found that the rules had generated approximately £1 billion in total savings: around £500 million from the pricing rules and approximately £486 million from the repeat use measures.

The alert system means that customers with personal current accounts are notified when they enter an overdraft or when an attempt is made to overdraw without a prior arrangement. The BCOBS rules set specific timing requirements for when these alerts must be sent on scheduled payment days, giving customers a window to act before further charges accrue.

If a customer is dissatisfied with how their bank has handled overdraft charges, affordability assessments, or treatment during financial difficulty, they can make a complaint to the bank. If the bank does not resolve the complaint within 8 weeks, or if the customer is dissatisfied with the bank's final response, they can refer the matter to the Financial Ombudsman Service at no cost.

For individuals in England and Wales who are experiencing problem debt, including overdraft debt, the Breathing Space scheme provides a formal period of protection. This must be accessed through an FCA-authorised debt advice provider. During the standard 60-day breathing space, creditors cannot require payment of interest, fees, or charges, cannot take enforcement action, and cannot contact the debtor to request payment. A person who is receiving mental health crisis treatment may be eligible for an extended form of this protection.

Banks are required to inform customers at account opening whether and how they can request a reduction or removal of their overdraft facility. In most cases, the process and timeframe for this will depend on the individual bank's procedures, as the FCA does not specify a maximum response time for such requests.

• Single Rate Rule: Since 2020, you can't be charged fixed daily fees for borrowing. Just one simple interest rate.
• Unarranged Parity: Unarranged overdrafts cannot cost more (in interest rate terms) than arranged ones.
• Mandatory Alerts: Banks must text/alert you before 10am/midday if you're about to be charged, giving you time to fix it.
• Repeat Use: Banks have to monitor if you're constantly in your overdraft and offer help if it's becoming a problem.
• Hardship Protection: They can't just remove your overdraft if it would leave you unable to pay essential bills.