High street banks hitting vulnerable customers with £1bn in 'rip off' charges
Rachel Reeves MP urges the Government to set a maximum cap on overdraft charges to protect the most vulnerable customers from unwarranted borrowing charges.
The major banks make over £1bn per year through the charges they impose on unauthorised overdrafts. The majority of that money comes from financially vulnerable customers.
The debt charity Stepchange estimates there are 1.7 million people in the UK trapped in an overdraft cycle that forces them to consistently use their overdrafts to meet both essential and emergency costs.
And, new research today from Which? shows that customers with unauthorised overdrafts could be repaying up to 180% of the value of the loan. Their research found that customers needing as little as £100 could be charged up to £156 more by some major high street banks than payday lenders are allowed to charge.
These are people who are already in difficulty, trying to manage debt day to day, and for whom the banks should have a responsibility to help manage their finances, and to help them out of the cycle of debt - rather worsening their problems with extortionate charges.
We urgently need Government action to deal with these rip-off charges and that’s why I am campaigning to cap these unfair and unjustified overdraft charges.
Huge progress was made on the charges imposed on those who borrowed money through payday lenders with the introduction of a cap in 2015. So, why are the banks still being allowed to get away with their excessive charges?
The Competitions and Markets Authority (CMA) recognised the issue when it conducted its review into the Retail Banking Market - but it failed to deliver any real solution in its report published last summer. It fell short of proposing an independently set maximum cap on charges – instead allowing banks to set a cap themselves, at a level of their choosing.
This cap as proposed by the CMA looks like it will be “business as usual” for the banks, and will likely do nothing to stop the deepening of a person’s debt crisis with punitive and disproportionate charges.
We need a proper effective cap, set by and enforced by the Financial Conduct Authority (FCA), for it to have any impact on helping — rather than worsening — the situation for those people most in need.
The CMA passed the buck firmly to the FCA which has, thankfully, agreed to recognise the issue as part of their review into High-Cost Short-Term Credit.
However, in the meantime, financially vulnerable customers are still being pushed further into debt by these unwarranted borrowing charges.
That’s why, in a Westminster Hall debate today, I am calling on the Government to take action now.
I want the Government to set a maximum cap on overdraft charges to stop this exploitation by the banks and to protect the most vulnerable customers.
Rachel Reeves is the Labour Member of Parliament for Leeds West
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