Financial watchdog restricts payment penalties

Bank and building society customers are to save millions of pounds in “unnecessary” penalty charges under an industry agreement announced by the new City regulator.

The Financial Conduct Authority (FCA) said the agreement reached with seven of the UK’s biggest high street banks will make a “big difference” to millions of customers’ everyday banking experiences.

The new approach has been adopted by Barclays, The Co-operative, HSBC, Nationwide, RBS Group, Santander and National Australia Group, which owns Clydesdale and Yorkshire banks.

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The agreement means the banks and building societies will use a “same day retry system” when processing direct debits, standing orders and bill payments.

This means that if there is not enough cash in someone’s account to cover a payment, the bank will try again later in the day to give the transaction a second chance to clear.

Payments out of bank accounts typically take just a couple of seconds to process. However, banks generally process incoming and outgoing payments such as direct debits and standing orders early in the morning.

This means that if a customer puts some money in their account or has their wages paid in later in the day they could be hit with unpaid item fees. The FCA said these penalties under the old system have been estimated to cost customers as much as £200m a year.

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Lloyds Banking Group operates a same day retry process on many of its transactions but is updating its systems to ensure it is used for all of them. The FCA said until this occurs, customers will be able to claim a refund for related late payment charges.

Banks will also need to be clearer with customers about the time by which money must be in their account to meet outgoing payments, the FCA said.

FAC supervision director Clive Adamson said the move is part of a wider focus by the FCA to ensure people get a “better deal” from everyday banking.

He said: “This is a small adjustment, but one that will make a big difference. We are committed to putting customer interests at the heart of everything the FCA does, and it’s encouraging that the banks are also beginning to take this approach.

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“There are no new rules here – this is an agreement with the industry; working together for the benefit of consumers can often be more effective than writing new rules, and it certainly delivers results more quickly.”