A STATUTORY cap on inflated charges by banks on high unarranged overdraft charges similar to that imposed on payday lenders may not be appropriate a committee of MPs has concluded.
The position came after Which? research showed that charges from big high street banks borrowing as little as £100 are as much as seven-and-a-half times higher than those from payday lenders - with Scots banks amongst the worst offenders.
But the All Party Parliamentary Group on Alternative Lending has concluded that while overdraft charges were "the elephant in the room" as not enough has been done to tackle subsequent debt problems, they did not feel that price caps, as seen in the payday sector, would be appropriate.
Payday loan charges were capped in 2015, as part of moves to prevent people getting trapped in a debt spiral.
But the Competition and Markets Authority’s two-year investigation into high-street banks which was completed in August stepped back from imposing a cap on unarranged overdraft fees – from which banks make £1.2bn a year.
The StepChange Debt Charity has reinforced its call for a statutory cap to be brought in by the Financial Conduct Authority which is examining exorbitant overdraft fees as part of a review into high interest loans.
Debt Change chief executive Mike O'Connor said: “The FCA should protect consumers as they did with payday loans and cap the cost of unarranged overdrafts. Reform needs to go beyond this and must look at the way in which overdrafts are designed. More needs to be done to support those in persistent overdraft debt and help them to repay this in an affordable and sustainable way.
“The financial problems caused by unauthorised overdraft charges are all too familiar. Our clients who struggle with overdraft debts face an average of £225 in additional charges each year."
The parliamentary group heard that the banks imposed the overdraft fees to offset the costs of providing free banking.
But the parliamentary group is to tell the FCA that the "one size fits all" approach capping approach may not work for "such a hugely varied sector".
It's review into the high cost of credit, including overdraft charges concluded: "It is clear that the payday cap has contributed to a beneficial outcome in the payday market – arrears levels and problem debt have reduced," the said "However, it seems these improvements are also due to the other regulatory measures introduced in parallel.
"Our view is the FCA should keep its focus on the competition and conduct aspects of its toolkit. And any future consideration of moves to extend interventions on price should be preceded by detailed impact assessments, which to our knowledge have not been undertaken in relation to the current consultation.
"In the absence of this work, we are not as yet convinced that an extension of the payday price cap would benefit consumers."
The consumer watchdog Which? last month found some banks charge more than seven times the payday loan maximum charge - with RBS and Bank of Scotland amongst the priciest.
Customers who need £100 could end up paying as much as £180 in fees at their bank if they borrowed the money across two monthly billing periods, according to the findings.
Which? found that RBS and NatWest could charge £180 to borrow for 30 days over two billing periods, a difference of £156 compared with a payday loan costing £24.
Customers using Bank of Scotland, Lloyds or Santander could be charged £160 to borrow across two billing periods, £136 more than a £24 payday loan, Which? found.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereLast Updated:
Report this comment Cancel