Nick Smith MP Labour MP for Blaenau Gwent
BLAENAU Gwent MP Nick Smith has welcomed radical proposals to clamp down on rip-off overdraft fees.
Mr Smith has backed what the Financial Conduct Authority (FCA) has described as its biggest intervention in the overdraft market for a generation.
The FCA is proposing a single rate of interest for overdrafts regardless of the amount borrowed with no fixed daily or monthly charges.
Other planned changes include stopping firms from charging higher prices for using an unarranged overdraft, banning fixed fees for borrowing through an overdraft, and telling banks to do more to identify overdraft customers who are showing signs of financial strain and help them to reduce their overdraft use.
An unarranged overdraft is where someone exceeds a pre-agreed overdraft limit. The FCA found that for 15% of people who do this, the rate of interest soars to 20% per day.
In 2017, banks made more than £2.4 billion from overdrafts alone, with around 30% from unarranged overdrafts.
Nick Smith MP was one of the 80 MPs who joined consumer champion Which? earlier this year in calling for the FCA to bring an end to rip-off overdraft fees.
Mr Smith backed the campaign due to concerns that Blaenau Gwent residents were being ripped off and, despite scrutiny from the FCA, not enough was being done to protect consumers.
Mr Smith said: “This will come as a welcome relief to many. These measures are long overdue.
“Banks already make money hand over fist without cashing in at the expense of those who can least afford it.
“It is also important that banks are required to recognise when a customer is struggling to get out of their overdraft and provide assistance.
“I hope to see these changes introduced swiftly and enforced strongly.”
Jenni Allen, managing director, Which? Money, said:“Finally, banks will no longer be able to charge rip-off unarranged overdraft charges, which have long penalised their customers, many of whom can afford it the least.
“Which? has campaigned on this issue for years and today’s strong action from the regulator will come as a massive relief for all those regularly hit with such extortionate charges, which cost some people thousands a year.
“The regulator must now ensure these important changes are swiftly introduced and enforced to finally stop this unfair practice and put an end to these excessive fees.”
The proposals will now be consulted on. Banks and consumer groups will have until March 18 to respond with changes set to be brought in by December 2019.