Move to tighten rules on overdrafts

THE OFFICE of Fair Trading is heading for a clash with the clearing banks over proposals that would crack down on the way overdrafts are arranged.

Officials want to abolish an exemption of bank overdrafts from key provisions of the Consumer Credit Act, which would force the banks to offer much greater disclosure and documentation to customers - and make it illegal to change the terms without notice.

It has also emerged that an option under study of bringing small firms within the Consumer Credit Act would have the effect of banning cancellation of their overdrafts without proper notice.

Bank managers would have to give seven days' formal notice of withdrawal of overdrafts or changes to terms, which small firms could challenge in court. This would prevent abrupt cancellation of overdrafts by banks.

However, bringing in small firms would require government agreement and a change of legislation, which runs counter to the Government's deregulation drive.

John Mills, head of the consumer side of the OFT, said an end to the banks' exemptions on overdraft disclosure was something the office could decide on its own.

He said that when the act was drawn up 20 years ago the banks fought a rearguard action, allowing the director-general of fair trading to exclude overdrafts from a lot of the detailed rules on disclosure.

'The option we are floating is that perhaps the time has come to change that,' Mr Mills said.

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