The United Kingdom’s (UK) antitrust oversight agency, the Competition and Markets Authority (CMA), is starting to implement its new overdraft rules. These new overdraft rules are based on a 2016 investigation that indicated more competition was needed in the banking industry.

One of the new overdraft rules is that banks must alert their customers when those customers are close to going ‘into the red’ in any of their accounts and incurring an insufficient fund fee (NSF).

This notification, according to an article published by Law360, can be sent via a mobile banking application or text message for which customers need to sign up.

Although it seems only casually related, implementation of this and other new overdraft rules was designed to stimulate competition in the retail banking industry.

The total picture allows for a greater amount of transparency to make it easier for individuals and business owners to switch banks if they feel it is warranted and in their best interest.

The CMA’s 2016 investigation revealed that unexpected overdraft fees can earn financial institutions upwards of $1.7 billion a year, accounting for currency exchange.

This enormous intake of funds is due in part to the fact that fees have been trending high, according to domestic reports to the Consumer Financial Protection Bureau. These fees have supposedly climbed over recent years to offset the fact that fewer and fewer customers allow their accounts to go into an overdraft state.

According to Law360, the engagement of the new CMA overdraft rules will take place in phases. At first, banks with a customer base containing 150,000 accounts will have to set up the alert system with all new account enrollees starting Friday, Feb. 2, 2018.

Over the next few months, previously established clients will gradually be looped into the program.

If the text or mobile application system fails to give a timely alert to avoid NSF fees from occurring once implemented, the banking facility must give the customer a certain number of hours or days to transfer money into the negative balance account prior to accessing fees.

Additionally, the fee structure of the financial institution must be totally publicized for greater transparency.

Another part of CMA’s new system will be a standardized template of questions that each bank will require new businesses to answer when opening an account.

The idea behind this streamlining of procedural questions among banking institutions is that it makes it easier for said businesses to be prepared to change banks if necessary.

The Lack of Transparency and Out-of-Order Transaction Processing

In the U.S. over the last number of years, there have been numerous overdraft fee class action lawsuits alleging a lack of transparency regarding banking institution fee structures.

Some complainants have claimed that banks have processed transactions behind the scenes in an out-of-order fashion from largest to smallest amounts to deliberately ensure an account’s overdraft state and corresponding fees.

If you or someone you know has been a victim of this type of action by a financial institution, you may qualify to joint a free overdraft fees class action investigation.

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