Banks should end all unauthorised overdraft charges because they are trapping people in persistent debt, the financial charity StepChange has said.The organisation also wants banks and regulators to do more to identify people caught up in a “vicious cycle of borrowing”.Even where customers have admitted they are in trouble, it said banks often fail to help.However High Street banks said they were committed to lending responsibly.In 2016 some 2.1m people used their overdraft every month of the year, according to industry figures.Unplanned overdraft fees could be banned
Lloyds abolishes unplanned overdraft fees
The UK’s biggest bank, Lloyds, has already abolished charges for unplanned overdrafts.Customers of Barclays cannot get an unauthorised overdraft, but they can apply for “emergency lending”. However others, including Santander, Royal Bank of Scotland (RBS) and NatWest still offer unplanned borrowing.Santander charges up to £95 for each month a customer is overdrawn. RBS, NatWest and HSBC have a cap of £80 a month.As part of its study into high cost credit the Financial Conduct Authority (FCA) said it was considering a ban on charges for unplanned overdrafts – but it is not due to report until 2018.’Action needed’Half of StepChange’s clients have overdrafts and each owe an average of £1,722.They often use their overdrafts to pay off household bills, so end up in a cycle of debt.
Furthermore banks insist on giving customers large overdrafts, even though they may not be able to afford the repayments, the charity claims.One of its clients was offered an overdraft of £2,250, even though they were working part-time and on benefits.It says such banks are guilty of “unaffordable lending”.When should you worry about your debts?”Lenders and regulators must take action to need to ensure that overdraft lending is affordable, that borrowers in financial difficulty get the right support and that we break the cycle of persistent overdraft debt,” said Peter Tatton, head of policy at StepChange.”Fundamental reform is needed.”However the banking industry said it was already doing its best to help customers in financial difficulty.”Overdrafts can help customers smooth their cash flow, but if circumstances change or they are struggling with their finances, they should contact their lender straightaway,” said a spokesperson for UK Finance.”Lenders will support customers and allow them a period of time to seek impartial and independent debt advice.”
Source: BBC News