OVERDRAFTS, it seems, have become a ubiquitous part of many people’s financial lives.

According to a consultation paper released by City watchdog the Financial Conduct Authority (FCA) this week, just over 19 million people across the UK make use of an arranged overdraft each year while around 13 million go into the red without getting clearance from their bank first.

While the FCA noted that many consumers see unarranged overdrafts in particular “as a short-term safety net which allows them to avoid some of the negative consequences of missing a payment”, the report also highlighted just how expensive that safety net has become.

Indeed, the FCA estimated that in 2016 the banking sector made £2.3 billion from charging customers for the privilege of using an overdraft, with £690 million of that coming from facilities that were not prearranged.

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For Andrew Hagger of personal finance website Moneycomms the fees, which are applied regardless of a customer’s credit rating, are so punitive they are tantamount to sub-prime lending.

“At one time all you would pay to use an overdraft was a daily interest charge - typically around 15 per cent to 20% EAR[equivalent annual rate] – making it simple to compare,” he said.

“However, in recent years the introduction of fixed monthly or daily fees has seen the cost of authorised overdrafts soar – particularly for smaller sums and for short durations.

“Banks say daily fees are easier to understand. That may be the case but for many people it can also prove to be far more expensive than a standard interest rate tariff without a fee.”

Rachel Springall of financial website Moneyfacts agreed, noting that the changes have seen the average monthly usage fee on arranged overdrafts “shoot up” from £4.69 five years ago to £6.75 today.

While many challenger banks do charge a daily interest rate instead of a flat fee, the main high street players levy a combination of daily and monthly fees and in some cases add an interest-based payment on top.

NatWest and RBS, for example, charge a monthly fee of £6 in addition to an EAR of 19.89% while Lloyds and Halifax both charge 1p per £7 borrowed per day.

At the opposite end of the spectrum First Direct charges 15.9% on anything over £250 while M&S Bank charges the same rate on anything over £100.

Mr Hagger calculated that that means that a seven-day £500 overdraft would cost £7.75 at NatWest and RBS and £4.97 at Lloyds and Halifax but just 71p at First Direct and £1.14 at M&S Bank.

For many people, paying over the odds for occasionally going into the red will be little more than an inconvenience.

However, as the FCA found that the bulk of the £690m charged for unarranged overdrafts was being paid by just 1.5% of the population, it appears that the banks’ charging structure is exacerbating the problems faced by those who are stuck in a cycle of escalating debt.

To help to address this the regulator has proposed a number of reforms that are designed to protect consumers, including making it mandatory for banks to send text messages to customers to warn them of potential overdraft charges.

Providers would also have to stop including the value of arranged overdrafts in customers’ ‘available funds’ total and would also have to make it clear that overdrafts are a form of borrowing rather than an extension of a current account.

The proposals are part of a wider-reaching crack-down on high-cost credit, which FCA chief executive Andrew Bailey said impacts on “the most vulnerable in society”.

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Other changes the regulator is consulting on include putting a cap on the cost of rent-to-own - otherwise known as hire purchase - goods, scrapping the sale of extended warranties and putting in place greater protections for users of doorstep loans and catalogue and store cards.

However, with the regulator’s plans all up for discussion with the providers as well as users of high-cost debt, it is unclear exactly what changes it will introduce - or when.

Whatever the outcome, Jane Goodland, responsible business director at wealth manager Quilter, does not believe it will go far enough.

Noting that debt is “terrifyingly popular in the UK”, Ms Goodland believes the only way to wean the country off its “current addiction to the drug of debt” is to make financial education a key part of the school curriculum.

“The time has come for the Government to stop treating the symptoms and turns its attention to a finding a cure,” she said.

“This needs to include equipping the next generation to make financial decisions through financial education.”