Banks accused of trapping people in persistent debt

News


06 Dec, 2017

Banks accused of trapping people in persistent debt

The UK’s leading debt charity, StepChange, has accused Britain’s lenders of putting people in a cycle of debt via unauthorised overdraft charges.

A survey of its own clients found that 2.1 million people were forced to dip into their overdraft at least once for every month of the year in 2016. Customers cited higher costs and little help from banks despite admitting they were in financial difficulty.

The charity has since demanded action from the Financial Conduct Authority (FCA), accusing banks of reckless lending.

This falls in line with comments made by Bank of England Governor Mark Carney earlier in the year, warning UK lenders against unstainable lending that could lead to a credit bubble ready to burst.

Since then, action has been taken and the charity recognised that some lenders, such has Lloyds Bank, have made substantial progress by abolishing unarranged overdraft fees and boosting transparency.

However, that being said, other banks still have a long way to go with NatWest and Santander still offering unplanned borrowing.

The very definition of an overdraft means that one’s bank account holds a deficit which needs to be paid back. Charging consumers each month who are already in their overdraft is just perpetuating the situation and creating a "vicious cycle of borrowing".

"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".

In response, high street banks say they are committed to responsible lending and said they are doing their very best to help customers in financial need, and one of the ways of doing that is by opening an overdraft.

"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".

Today's News - UK £10tn worth largely comes from land value