MPs have lambasted major banks for excessive overdraft charges and proposed an industry-wide cap on fees after concluding that consumers “don’t stand a chance” of being able to identify the best deal.
Members of the Treasury select committee called for urgent action to tackle the problems after asking 12 of Britain’s banks to detail their charges for authorised and unauthorised overdrafts.
The responses, which have been published, reveal a dizzying array of charging structures, with some banks imposing daily fees, some imposing monthly charges, and some charging interest on the amount owed. In many cases banks use a combination of these methods, making comparisons between banks difficult.
Last month, following a two-year investigation into the sector, the Competition and Markets Authority (CMA) stopped short of imposing an industry-wide cap on overdraft fees. Instead banks will be able to set their own monthly maximum charge for unauthorised overdrafts, taking together all fees and interest, which they will be required to publish.
However Andrew Tyrie, who chairs the Treasury select committee, said yesterday that these proposed remedies “don’t appear robust enough to deal with this serious problem” and that the committee would be asking the CMA to justify its conclusions in the autumn.
At the moment going overdrawn on a current account without permission can be several times more costly than taking out a payday loan. An individual borrowing £100 for 28 days via an unauthorised overdraft would face a bill of £90 at NatWest and its parent, Royal Bank of Scotland. With NatWest and RBS, if a customer goes into unauthorised overdraft by more than £10, they are charged a fee of £6 for each day they remain in that position, capped at £90 per “charging period”. A charging period runs from month to month.
In this same scenario Lloyds, HSBC and TSB would each charge £80.
When asked what the daily charge was for a customer using an authorised overdraft, the banks provided a variety of answers. Barclays said its standard charge ranged from 75p a day up to £1,000 to £3 a day over £2,000, while RBS and NatWest said they would apply interest and a £6 monthly fee, and HSBC said its customers would only incur interest as it did not charge set-up or usage fees.
Tyrie said: “Some customers are being charged very high rates for using their overdrafts, both arranged and unarranged. Charges can also be very complex.” He added that better competition could bring choice and better results for customers but “this can only happen if consumers know what they are being charged, which they don’t at the moment”.
Rachel Reeves, a Labour MP on the committee, said the CMA report was a missed opportunity “and did not go nearly far enough to tackle excessive overdraft charges … What these responses from the banks now show is just how complex and confusing the charge structures are for overdrafts – customers don’t stand a chance of being able to identify the best deal.
“The ball is now firmly in the Financial Conduct Authority’s court. It must step up to the challenge and take necessary action, for example by imposing a monthly maximum charge on overdrafts, to ensure that those who are most financially vulnerable are protected.”
