MP Rachel Reeves has proposed legislation to make UK banks subject to the same rules applicable to payday loan lenders.
Bank customers who have been subject to ‘extortionate’ overdraft fees have hope going forward after a parliamentary bill tabled recently promises to protect customers from escalating overdraft fees. On 25th April 2017, Labour MP Rachel Reeves who also happens to be a Treasury select committee member tabled the bill outlining plans for FCA (Financial Conduct Authority) regulators to cap the total amount of money UK banks are allowed to charge their customers for making unauthorised overdrafts. The bill proposes limits similar to those imposed on payday loan charges.
According to Rachel Reeves, UK banks have forced many people to take up more debt with the charges applied on unauthorised overdrafts. Reeves argues that UK banks have a responsibility to help their customers get out of debt rather than being part of the problem.
The FCA has already included overdraft fees into a review on high interest loans alongside doorstep lending and payday loans. The FCA announced it would be including overdraft fees in its review in response to a two-year investigation into high street banks conducted by the Competition and Markets Authority (CMA) in 2016. The CMA was focused on capping overdraft fees but stepped back and instead required banks to be publishing their monthly maximum charges going forward. The FCA has taken over the issue.
It is estimated that UK banks make approximately £1.2 billion every year from unauthorised overdraft fees. Rachel Reeves is pushing for restrictions to bring down this amount. The current cost of borrowing a hundred pounds (£100) via unauthorised overdraft for a month can amount to ninety pounds (£90). This is 400% more than the maximum limit set on payday loan charges.
Rachel Reeves has been campaigning for a cap on extortionate overdraft fees in the UK for a long time. In her statement, she expressed concerns about UK households saving less due to these unjust fees. Her concerns are evident according to statistics given the fact that the savings ratio is at 3.3% currently (a record low from 2010) while unsecured debt has increased by a record 10% in the past year alone. Statistics also indicate that the debt-to-income ratio has increased by 6% in the past year to stand at 145%. This poses serious economic risks to Britain’s economy according to Reeves.
With an election looming, Reeves’s bill may not become law in the current parliament. She, however, promises to reintroduce the bill as a private member or via a bill amendment in parliament if she gets re-elected. Reeves has also called on parties to incorporate the bill in their manifestos. She wants to see banks subject to the same limits as payday lenders to bring an end to extortionate UK overdraft fees charged by high street banks.
Is the Company Director of Swift Money Limited.
He oversees all day to day operations of the company and actively participates in providing information regarding the payday/short term loan industry.