Our High Street banks have been forcing extravagant overdraft charges on clients for a long time. Despite the fact that the financing costs at which banks borrow cash are at very low, they choose not to pass on that advantage and keep on ripping off individuals with high charges for unapproved overdrafts.
In January, I led a meeting in Leeds where the Financial Conduct Authority CEO, Andrew Bailey attended to hear the grievances from individuals in the region with a notoriously high cost of credit. A Leeds-based charity, StepChange was at the meeting and disclosed to him how the crush facing numerous financially vulnerable individuals in Yorkshire became significantly more severe by a portion of the exorbitant charges exacted by banks for unapproved overdrafts.
This issue keeps on deteriorating as inflation and prices in the shops rise, and wage increments fail to keep pace. Unapproved overdrafts do not exist as the banks continue to allow the continuance of the borrowing.
Payday loan specialists can no longer get away with such exorbitant fees since the imposing of a top limit of £24 a month to get a loan of £100. In this light, banks also need compelling to end these ravenous practices and quit ripping off millions of their clients.
Our High Street banks make more than £1 billion a year from charges on unapproved overdrafts. The charges are all the more outlandish because banks keep on enjoying ultra-low acquiring rates and are again making multi-billion benefits after the financial crash. That is the reason I pushed for another law in Parliament this week to set a maximum limit on unapproved overdraft charges.
StepChange found there are 1.7 million individuals in the UK caught up in an overdraft cycle. They consistently use overdrafts to meet their basic and emergency costs. These family units struggle to escape their overdraft as charges and interest on overdrafts can develop and make it much harder to escape being in the red. A StepChange study indicated that borrowers who have slipped into an unapproved overdraft pay average charges of £45 a period. This indicates £225 a year on average on unarranged overdrafts.
More so, consumer watchdogs discovered clients borrowing £100 pay more than £156 more in fees by certain banks than payday moneylenders can charge for loaning a similar sum over a similar period. Banks will charge as much as £5 every day, for overdrawing with just 10p. Getting £100 can cost as much as £180 if you borrow over two charging periods. That is preposterously high and unacceptable.
My Unauthorized Overdrafts (Cost of Credit) Bill will require the FCA to come up with new policies to cap the charges banks can charge. As MP for Leeds West, I have seen the effect these extortionate charges can have on the fiscally powerless. Banks ought to have an obligation to help individuals bring their accounts under control – not add to borrowers’ hardships with increased charges.
Under the new guidelines presented by the FCA two years back, interest and expenses on all high-cost short-term credit loans from payday lenders stand at 0.8% for each day of the sum borrowed. If borrowers fail to reimburse on time, the default charges stand at £15. This implies anybody taking out a £100 loan from a payday moneylender for 30 days and repaying it back on time will not pay more than £24 in charges and expenses.
It is ridiculous that these rules to end the deceitful practices of some payday lenders do not affect banks. I am resolved to change that with banks compelled to conform to a similar cap on charges. Controllers at the Competition and Markets Authority investigated this issue a year ago as a significant aspect of their survey of retail banking and perceived the problem. They missed the chance to suggest the action that is so unmistakably required.
We have an issue with the increasing household debt, and there has been a 10% increase in unsecured loans in the last year. The household debt to wage proportion has grown by 6% over the last year and is currently at 145%. Banks are making the problem worse. My crusade to stop these fees will not be enacted before the general election on June 8.
If re-elected, I will continue fighting and make my top priority to get the change that bank clients deserve. I am additionally encouraging all the political parties to incorporate a crackdown on these sham bank charges. Handling these unjustified expenses should not be a party political issue. It involves what is reasonable and just. We have to do much more to stop the constant hammering of borrowers with these charges.
Rachel Reeves, Member of Parliament Leeds West.