Regular readers will know that banking
is something that we often mention on The Customer Service Blog - mainly because
it is the area of business that has the most customer complaints, yet
bizarrely it also has a very high level of customer loyalty.
My local MP, Rachel Reeves, has
written this article arguing that the Government should set a maximum cap on
overdraft charges to protect the most vulnerable customers from unwarranted
borrowing charges.
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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 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 Member of
Parliament for Leeds West. She has served as the Shadow Secretary of State for
Work and Pensions. Before becoming a politician she worked as an economist at
the Bank of England and at the British Embassy in Washington D.C.