Last checked at 
(Adds banking trade body comment)
By Iain Withers
LONDON, Jan 28 (Reuters) - Britain's banks have two weeks to
explain changes to their overdraft pricing that will leave about
8 million consumers worse off, the Financial Conduct Authority
(FCA) said, warning that those causing harm will face regulatory
action.
The watchdog wrote to banks after lenders including HSBC
, RBS, Nationwide and Santander
announced plans to charge customers a flat interest
rate of nearly 40% on overdrafts - more than double some of
their previous charges - ahead of new rules in April.
Other lenders plan to price overdrafts based on risk, with
Lloyds announcing plans that could result in rates as
hi8gh as 49.9% for consumers with poor credit histories.
The FCA rule changes were designed to fix a "dysfunctional"
overdraft market, banning lenders from imposing fixed daily or
monthly fees and from charging more for unauthorised overdrafts
than for those that have been authorised.
But the regulator admitted last week that about three out of
10 of the 18.2 million customers using overdrafts would be worse
off after lenders increased prices for arranged overdrafts.
The two-week deadline is unusually short for an FCA request,
putting pressure on banks to defend their actions.
British lenders earned more than 2.4 billion pounds ($3.2
billion) from overdrafts in 2017, an FCA study found last year,
with charges falling disproportionately on vulnerable consumers.
The watchdog said that banks and building societies needed
to take positive steps to help customers who may be worse off or
in financial difficulties as a result of high overdraft charges.
WATCHING CLOSELY
"We have asked to see their plans for how they are dealing
with the most affected customers," it said in a statement. "We
will be keeping a close eye on the market and we will act should
we see continued harm."
Banking trade body UK Finance said lenders would contact
repeat overdraft users to discuss alternative options to reduce
borrowing costs.
"The banking industry is committed to helping customers
manage their money and has been working closely with the FCA to
implement these new rules," UK Finance's Eric Leenders said in a
statement.
Martin Lewis, founder of MoneySavingExpert.com, said the FCA
intervention was "a slap on the wrist for the banks".
"It's an admission that the FCA's overdraft changes haven't
worked entirely as it wanted, and now the regulator is baring
its teeth," he said.
Lewis said someone with a 2,000 pound authorised overdraft
could see their costs more than triple from about 180 pounds a
year to around 680 pounds.
Gareth Shaw, head of money for consumer group Which?, said:
"The current lack of competition on overdraft pricing is
disappointing, so it is right the regulator is taking a closer
look."
($1 = 0.7608 pounds)
(Additional reporting by Pamela Barbaglia and Huw Jones
Editing by Louise Heavens, Jan Harvey and David Goodman)
