The Financial Conduct Authority (FCA) has said it will be looking into the high-cost credit sector, which includes overdrafts, next month. But is this too little too late, asks our guest author Rachel Reeves MP?
The announcement from the FCA shows that, despite calls for urgent action to be taken to tackle punitive unarranged overdraft fees, the Authority has failed to make it a priority and has delayed work on this issue once again.
The scale of harm to consumers, particularly vulnerable consumers and those struggling with persistent debt, is clear. And the case for the FCA to take action couldn’t be stronger.
Over two million people in the UK have permanent overdrafts, with many stuck in a “vicious cycle” of borrowing, according to the debt charity StepChange. Which? previously found that customers needing to borrow as little as £100 through an unarranged overdraft could be charged up to seven and a half times more, or £156, by some high street banks than the FCA allows payday loan companies to charge.
Furthermore, new research from Which? shows that attempts to tackle these fees, through the introduction of the Monthly Maximum Charge, appear to have made little to no difference. The majority of banks assessed are continuing to charge customers extremely high fees for relatively little money borrowed.
Obviously there is something very wrong with this picture, and in particular there is an issue with how banks treat customers who are heavy overdraft users. These consumers are easily identifiable by banks as being in financial difficulty and yet the fact that they continue to be penalised with sky-high fees is stark evidence of an industry that isn’t treating customers fairly.
The FCA has a responsibility to protect consumers and needs to do more to ensure that consumers are always put first. The continued lack of action from the regulator on this serious issue is concerning and that’s why I, as part of a cross-party group of MPs, am happy to support Which?’s calls for urgent action to be taken.
I have been a long-term supporter of Which?’s calls to tackle unarranged overdraft fees and have campaigned on this issue in Parliament. In 2017, I introduced a Bill on Unauthorised Overdrafts having previously secured a debate on the topic.
Now we want to see the Government intervene swiftly to give the FCA the power to implement new regulations that cannot be challenged by the banks.
What do you think should be done about the fees that bank charge on unarranged overdrafts?