Today I had a Westminster Hall in debate in Parliament on the extortionate fees and charges on bank overdrafts.
Currently, the major banks make more than £1bn per year through the charges they levy on unauthorised overdrafts. Most of the money comes from financially vulnerable customers.
New research published today by Which? showed that big high street banks could cost up to 180% of the amount borrowed, showing the shocking extent to which customers are being pushed further into a spiral of debt by their own banks.
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 than sending them deeper into crisis with extortionate charges.
Huge progress was made on the charges faced by those accessing finance through payday lenders with the introduction of a cap, so why are the banks being allowed to charge such exorbitant amounts?
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 debate in Parliament today, I called on the Government to take action now.
I want the Government to set a maximum cap on overdraft charges to stop banks being able to impose charges that can be as much as 7.5 times higher than the maximum charge on a payday loan. The Minister has agreed to meet with me to discuss further, and in the meantime I will continue to do what I can in Parliament, to put an end to these exorbitant charges.