Unauthorised Overdrafts

Debate between Simon Kirby and Rachel Reeves

Wednesday 8th February 2017 Westminster Hall

[The Economic Secretary to the Treasury (Simon Kirby)]

What a pleasure it is to serve under your chairmanship, Mrs Gillan. I thank the hon. Member for Leeds West (Rachel Reeves) for securing this important debate on an issue that we share a keen interest in. I am here to listen and, hopefully, to be helpful.

It is clear that we all share a commitment to ensuring that people across our society can rely on the financial services that they need to manage their money effectively, securely and confidently. We want an economy that works for everyone. For most people, the bedrock of that is a transactional bank account that enables them to manage their personal finances on a day-to-day basis. Access to credit, including the use of an overdraft facility, is an important part of that.

For that reason, the Government are committed to doing two things. First, we will support and encourage competition among financial services providers, not only so that people have more choice over who they bank with, but because we know that more competition inevitably means better options on offer for customers, who can then vote with their feet. Secondly, we want to make sure that British customers are supported in the important financial decisions they make.

The hon. Members who have spoken have expressed the same aims, and I want to discuss the key issues that have been raised. I thank the hon. Members for Ashfield (Gloria De Piero), for Makerfield (Yvonne Fovargue), for Bolton South East (Yasmin Qureshi) and for Islwyn (Chris Evans) for making some thoughtful points, sharing their constituents’ stories and making some more general observations. I am sure that the FCA, which is reviewing high-cost credit, will listen carefully to the debate.

The hon. Member for Leeds West rightly discussed the Competition and Markets Authority. A key question is how to ensure that there is competition. That is why we set up the CMA in the first place as a single stronger and independent competition regulator. It is the CMA’s role to review the market, assess how effectively competition is working and, where appropriate, propose remedies to address any issues. Hon. Members have referred to the CMA’s retail banking market investigation, which was published last summer. I am aware of the variety of opinions on that. It represented a thorough analysis of how competition is working in retail banking, including the role of both unarranged and arranged overdrafts.

The CMA concluded that the retail banking market is not working well for overdraft users. To tackle that, it is imposing remedies to improve overdraft transparency, including setting a monthly maximum charge for unarranged overdraft charges. It also looked closely at whether a hard cap on overdraft fees was necessary on competition grounds, and reached the conclusion that it was not. However, as hon. Members may know, it also recommended that the FCA should assess the ongoing effectiveness of the monthly maximum charge and consider whether other measures, including the introduction of rules, could be taken to enhance its effectiveness further.

The hon. Members for Leeds West and for Makerfield mentioned the action of the Financial Conduct Authority. It is true that the FCA has an important role to play in relation to overdrafts. It is worth pointing out, of course, that it has a much broader set of statutory objectives in relation to financial services, duties, powers and tools than the CMA. It has the power to cap the cost of all forms of consumer credit if that is deemed necessary and proportionate to tackle risks to consumers.

[Rachel Reeves]

I thank the Minister for his response to the substantive points that I and my hon. Friends have made. Does he think it is inconsistent that the Government have set a monthly maximum charge for payday lenders, but not for high street banks in relation to unarranged overdraft charges? If he does, is it time for the Government to act by setting a monthly maximum charge for unarranged overdrafts as well?

[Simon Kirby]

I understand the point that the hon. Lady is making. What I think is appropriate is for the Government to listen carefully to what the FCA comes up with later in the year, and to act in consumers’ best interests. I am sure we both agree on that. There is clearly an inconsistency; otherwise we would not be having this debate.

The Government welcome the fact that the FCA is looking closely at what action might be necessary on overdrafts, considering the twin objectives of enhancing competition and protecting customers. That is why, in the light of the CMA’s recommendations last November, the FCA launched a consultation on high-cost credit, including high-cost, short-term credit—payday loans—and overdrafts. The FCA’s call for contributions remains open for another week—until next Wednesday, 15 February. I encourage those watching or listening to the debate, or reading it afterwards, to contribute to that, so that the FCA will be fully informed of the variety of opinion.

Today’s debate is timely, in view of that. It has—and I thank the hon. Member for Leeds West for this—attracted quite a lot of press interest; the subject is obviously of interest out in the real world. I am certain that hon. Members’ views will be heard clearly.

[Rachel Reeves]

I get the idea that the Minister is wrapping up. At the end of my speech, I asked whether he would meet me and representatives of Which? and StepChange. I hope that he will accept that invitation and that the meeting can be arranged soon.

[Simon Kirby]

I am not quite ready to wrap up yet; I have a few things to say that I am sure the hon. Lady will be pleased to hear. I should be delighted to meet her and representatives of Which? at an appropriate point—the most constructive time, when we can make the most difference. Obviously, while the FCA is considering the matter and the consultation is still open, the appropriate time may not be next week, but I should be delighted to work with her to come up with a solution that benefits everyone.

I think it is safe to say that the Government will be working alongside the FCA to understand the issues in the market. We will continue to do so, to ensure that it has all the appropriate tools at its disposal to take action where problems are identified. We have heard about some of the issues that people face when taking on overdrafts or other forms of high-cost credit. I can reassure hon. Members that the Government will closely monitor the work of the FCA in looking at that area. I am sure that the views expressed by hon. Members this morning will be taken into consideration as the regulator carries out its work.

We in the Government will also continue our efforts, complementing the work of the FCA. We have taken steps to encourage competition, to support credit unions and to improve financial education. The Government will, through that comprehensive approach, continue to take steps to make sure that British customers have quality choices, good information and strong protection.

It may be helpful if I say, in closing, that the CMA is not the final word in competition. There are important areas outside the scope of its work and the Government will keep a keen eye on the entire area. The Government will take the necessary action to ensure that our banking sector is not only the most competitive and innovative in the world, but fair.

Question put and agreed to.