MPs demand end to 'rip-off’ bank overdraft fees as some cost more than payday loans
2 min read
Dozens of MPs have written to the Financial Conduct Authority in a bid to have unarranged overdraft charges capped at the same level as arranged overdrafts.
The 84 signatories, alongside consumer watchdog Which, called on high street banks to end the “unfair practice” which can see customers charged up to 7.5 times more than through payday loans.
The group compared the cost of borrowing £100 for 30 days in an unarranged overdraft across 16 high street banks with the equivalent borrowing through a payday loan.
They found 13 of the banks investigated charged more than a payday loan company, which having previously had charges capped by the FCA.
Chair of the business select committee, Rachel Reeves, wrote in The Times: "Banks are less obvious villains than unscrupulous payday lenders and vulnerable customers are the least likely to switch banks, even when they could possibly get a better deal.
“The problem is so severe that payday lenders now offer better value than some banks because of the high fees on unarranged overdrafts. This must stop.
“The cap on payday loans has shown that action by the government and the regulator can work.
“So, what are they waiting for? It is time to cap the rip-off fees on unarranged overdrafts."
An FCA spokesman said they were “concerned” at how the market worked for some people and that “often the fees are too high and charges can be unreasonable”.
"We think the market may need fundamental reform and we have questioned the role of unarranged overdrafts should play in a modern market,” they said.
"We'll set out our findings on May 31, including proposals to address some of our concerns."
A spokesman for trade association UK Finance said: "The industry is committed to helping customers with their everyday banking and an overdraft can be a short-term solution to smooth cashflow.
"An unarranged overdraft might arise where customers have miscalculated their finances, although we would always encourage them to contact their bank to arrange an overdraft and minimise costs.
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