Unauthorised Overdrafts

Debate between Yasmin Qureshi and Rachel Reeves

Wednesday 8th February 2017 Westminster Hall

[Rachel Reeves]

I thank my hon. Friend for speaking on behalf of her constituent. We have all experienced people in our patches being ripped off by banks. Frankly, that is not what people expect. They expect to be able to trust their high street bank to give them a good deal and treat them fairly, yet in my hon. Friend’s constituent’s case, that just is not happening.

[Yasmin Qureshi (Bolton South East) (Lab)]

I congratulate my hon. Friend on securing this excellent debate. She talked about the Which? report. She will be aware that NatWest customers face fees of £180 for exceeding their limit by £100 for 30 days, and that Lloyds and Santander demand £160. That is completely uncalled for.

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[Rachel Reeves]

I agree. What really worries me is that most of the £1 billion that is made every year from unauthorised charges is made on the backs of those who are most financially vulnerable. It is a bitter irony that it is now a better deal for some people who need short-term credit to go to a payday lender rather than their high street bank. Most of us regard banks as more reputable and fairer to customers, yet for many people that is just not the case.

Huge progress has been made on the charges faced by people who access finance through payday lenders, as my hon. Friend the Member for Makerfield (Yvonne Fovargue) mentioned, with the introduction of a cap following great work by my hon. Friend the Member for Walthamstow (Stella Creasy), so why are banks still allowed to get away with these unfair practices? There was some hope last year that this problem would be addressed when the Competition and Markets Authority undertook a review of the retail banking market. The CMA recognised the issue and the inquiry’s chair subsequently told the Treasury Committee that unauthorised overdrafts are

“the biggest single problem in the personal banking market”.

The CMA published its review of retail banking on 9 August, but frankly its conclusions and proposals were a missed opportunity. It found that overdraft users make up almost half of those with personal current accounts and that many find it hard to keep on top of their arranged or unarranged overdrafts. It acknowledged that failing to do so can be costly, since overdraft users can accumulate high costs from the complicated mix of interest, fees and charges.

The review goes on to say that overdraft users, like other personal current account customers, have very low switching rates, which is particularly striking given that they often have the most to gain from switching. One reason for that is that overdraft users can be uncertain about whether they will be able to obtain an overdraft facility from a different bank or when such a facility would be made available to them and are therefore worried about moving accounts,. Anyway, none of the major high street banks has a great offer for customers who are financially vulnerable.

When it came to remedies, the CMA’s proposals, quite frankly, fell well short of the mark. Some measures will go some way to addressing problems for some people, but not for those who most need support. One proposal says that customers need to be given clear notice when they are going overdrawn and that banks will be required to notify customers when they are going into an unarranged overdraft. Customers also need to be given the opportunity to avoid incurring charges, and the alerts that banks will be required to provide will inform them of a grace period during which they have an opportunity to avoid charges by paying more money into their account.

Critically, the CMA fell short of proposing an independently set maximum cap on the charges on overdrafts, as we have with payday loans. Instead, the report said that banks will be required to set their own ceilings on their unarranged overdraft charges in the form of a monthly maximum charge. However, most banks already have that. The problem is not that banks do not have a maximum charge—they do, and it might be £5 a day or £90 a month—but that the maximum charge is much too high.

The major four high street banks, which make up 77% of the current account market, already set their own caps on charges, and those charges can be up to £100 a month. The CMA’s proposals represent little more than business as usual for those banks. Competition in this section of the market is weak, and in the past few years it has got weaker still with the merger of many of our high street banks. Heavy unarranged overdraft users are the least likely to switch banks accounts. Banks make more than £1 billion from unarranged overdraft charges and, given the substantial revenues they generate, there is little financial incentive to lower existing charges.

Ultimately, the proposals in the CMA report might take small steps towards helping some, but for the majority of people who are already struggling and do not have the means to prevent unauthorised overdrafts even if they are alerted to them, they will do little, if anything, to help. The monthly maximum cap as proposed by the CMA will likely do nothing to stop the deepening of a person’s debt crisis, with punitive and disproportionate charges.

I do not want to deny the banks the right to charge for the services they provide, but I do want some fairness and proportionality. It is not fair to charge £5 a day or £90 a month for being a few pence over an overdraft limit, and it is not fair to whack charges on customers who are struggling with debt, in the knowledge that the charges will make their problems worse, not better. Banks need to take some responsibility for their customers.

As the Competition and Markets Authority admitted at a meeting of the Treasury Committee, the measures proposed in the report are geared at everybody and not in particular those who are financially vulnerable, for whom no direct action is proposed. When I asked whether the banks were taking advantage of financially vulnerable customers, it conceded that those customers who are least likely to switch are a “captive audience” for the banks and their excessive charges.

Ultimately, the Competition and Markets Authority report was a huge opportunity finally to put an end to what it calls “uncomfortably high” charges and to address what it said was the

“biggest single problem in the personal banking market”.

However, the opportunity was squandered. In effect, it passed the buck by asking the Financial Conduct Authority to respond to the recommendations. Peter Vicary-Smith, the chief executive of Which?, said to the Treasury Committee that the Competition and Markets Authority had left the heavy lifting and the difficult decisions for the Financial Conduct Authority to make. In response to that buck-passing, the new chief executive of the Financial Conduct Authority, Andrew Bailey, has made the welcome decision to include this issue in its ongoing review of high-cost short-term credit, which will report later this year.

The Financial Conduct Authority needs to do more to tackle the detriment caused by persistent overdraft use. I have been pleased by the focus that the FCA has placed on this issue so far, picking up where unfortunately the CMA left off. StepChange Debt Charity says that the review

“should include looking at what more can be done by lenders to support people who are trapped in an overdraft cycle and give them better and more affordable ways of paying back their debts.”

[Yasmin Qureshi]

Does my hon. Friend consider that what the banks are doing is insidious, bearing in mind that they and the Government can borrow at very low rates of interest?

[Rachel Reeves]

My hon. Friend is right. The bank rate is so low and banks are being given access to money at such low rates from the Bank of England. The problem is that they are not passing that on to their customers, and certainly not to those who most need it. The banks should be doing much more to ensure that those low interest rates are passed on, because that would give the whole economy a boost as well as helping those people who most need it.

I have been calling on and will continue to urge the Financial Conduct Authority to look at setting a cap for banks on unauthorised overdrafts as has already been done for payday lenders. It must look at such lending by banks in exactly the same way and not shy away from setting a cap for banks, too.

I also urge the Government to take action, because while the Financial Conduct Authority undertakes its review, every single day more financially vulnerable customers are being exploited and more and more are being pushed further into a cycle of debt. That is simply not acceptable. The justification for a cap in these markets has been made with the introduction of a cap in the payday lending market, and those are two different sources for the same short-term credit for people who need it immediately. They can either go to a payday lender or go into an unarranged overdraft. Whichever option they decide on to meet their short-term needs, they should not be exploited. The Government recognised that for payday lending and now need to recognise that on unarranged overdraft charges.

Frankly, it is a disgrace that the banks are charging more than payday lenders for short-term lending and getting away with it, so the Government should take action. That is why I am calling on the Minister and the Government to legislate for a cap on overdraft fees and charges, as they have already done for payday lending through the Financial Services (Banking Reform) Act 2013. That would allow the FCA to implement such a cap without delay and without the risk of the banks taking the matter to the courts.

It is not right that the banks are making huge profits at the expense of the most vulnerable. Anything less than an independently set cap on overdraft charges will not be enough. I urge the Minister and the Government to act now, and I ask that as a first step the Minister will agree to meet me and representatives of Which? and StepChange to discuss this issue further so that we can ensure that all customers are afforded the protection they deserve.

State Pension Age (Women)

Debate between Yasmin Qureshi and Rachel Reeves

Wednesday 11th May 2011 Westminster Hall

[Rachel Reeves]

We will hear from the Minister in a moment, but we heard the arguments being rehearsed when the Pensions Bill was debated in the House of Lords. We are told that we first need to reduce the budget deficit but, as other Members have said, these provisions will not change that deficit in this Parliament and if the Government’s plans to eliminate the structural deficit in this Parliament come true, I do not see why changes on this scale will be needed in the next Parliament.

The Government’s other claim is about longevity, but longevity is not especially increasing for women aged 57, so why are we particularly targeting women of that age? If the Government wanted to look more broadly at longevity and increases in the state pension age, they would, I think, get cross-party support for that. It is particularly unfair and disproportionate to harm a group of women who have five years to prepare for the changes and have so little chance of making up the difference in lost income, which is what the women who have been writing to all of us are saying.

My final quote from the Minister is:

“a pension promise made should be a pension promise kept.”

He and his colleagues should heed that, and we are not alone in our thinking. Age UK, the unions, Saga, The Guardian and the Daily Mail are all arguing for the Government to think again, and Age UK has organised a mass lobby of Parliament for a week today.

[Yasmin Qureshi]

The change to the pension provision was not in the coalition agreement and will do nothing to reduce the deficit by 2015. It will, however, as my hon. Friend has said, hit 5 million hard-working people, 500,000 of whom are women who will suffer particularly harshly. Does she agree that this is another example of hard-hearted Tory policies hitting the ordinary working person?

[Rachel Reeves]

I agree, but I would also go a bit further: not only was the change not in the coalition agreement—reached just a year ago—but it contradicts it. The agreement states that the state pension age for women will not start to rise to 66 before 2020, but under these proposals that rise will start in 2018. For that simple reason, coalition MPs from both the Liberal Democrat and the Conservative parties are under no obligation to support the changes.

The lobby of Parliament organised by Age UK for a week today will give a voice to those who are adversely and unfairly affected, and I hope that the Minister will spare some time to meet some of the women who are hit by the changes and are coming down to Westminster to oppose them.

The Bill has had its First Reading in the Commons and we are awaiting its Second Reading. I once again urge the Minister to honour the coalition agreement to which he signed up, to admit that the impact of the proposals is unacceptable, and to revise the timetable so that no one has their pension delayed by more than a year and trust can be restored in the pension system, a system which the Minister, in his heart, believes is so important.