The Financial Conduct Authority announced it will investigate high fees on overdrafts and loans, just months after the competition watchdog decided a probe was not necessary.
The FCA may impose a limit on overdraft fees after claims that vulnerable consumers are punished with excessive charges, which can be up to £100 per month.
The level is higher than some pay-day loans and high interest credit cards, interest on which is already capped by the FCA.
In August, the Competition and Markets Authority (CMA) decided against an overdraft fee cap, suggesting a voluntary limit set by banks themselves would be sufficient.
The FCA will now review that decision after MPs lambasted the CMA during a Treasury Select Committee meeting on Tuesday. Labour MP Rachel Reeves accused the watchdog of a “dereliction of duty“.
Christopher Woolard, executive director of strategy and competition at the FCA, said it would look at ways to improve competition in the current account market, and that overdraft and loan fees would now be a priority.
“Our role in regulating retail banking markets goes beyond the remedies the CMA has asked us to take forward, and we will continue to look more broadly at how well these markets work, with a particular focus planned on high-cost credit including overdrafts,” Mr Woolard said.
Gillian Guy, chief executive of Citizens Advice, said overdraft charges can quickly mount and trap customers into debt. “An unplanned expense that pushes someone into their overdraft by just a few pounds can lead to them being trapped in a cycle of daily charges,” she said.
In response to the announcement, Andrew Tyrie, chair of the Treasury committee, said: “The FCA have acted quickly. It looks as if they may be prepared to pick up the baton that the CMA has just dropped.”
The regulator will also investigate door-to-door lending, logbook loans and guarantor loans where a third party guarantees to repay the debt if the original debtor can’t. Results will not be published until 2018, however.
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