Overdraft charges are ‘the elephant in the room’, say MPs
MPs say not enough has been done to tackle debt problems as a result of high overdraft charges
OVERDRAFT charges are "the elephant in the room", MPs say, as not enough has been done to tackle debt problems caused by high fees.
Yesterday, a committee of MPs said that bank overdrafts were the major source of high-cost borrowing for millions of people, with costs often exceeding those of payday loans.
The committee also expressed concern over the transparency of charges.
According to the , the committee heard how banks make £1.2billion in unauthorised charges each year, paid by those who were least able to bear the cost.
The free banking model, whereby financial institutions offer free in-credit banking and claw back costs through overdraft charges, required "government or regulatory attention", the committee said.
In August, the Competition and Markets Authority (CMA) decided against a cap on overdraft charges.
But, the city watchdog, the Financial Conduct Authority (FCA), has now announced that it will examine the issue in detail itself.
According to new figures from financial services firm Momentum UK, 4.5million people in Britain have made use of alternative credit (including high cost credit and informal loans), while around 4million people have had to borrow money from friends or family.
Borrowing is so widespread in the UK that consumer debt is rising at its fastest rate in ten years.
5 steps to get out of debt
- WORK out how much you owe. If your debt repayments excluding your mortgage take more than 20 per cent of your net monthly income you are entering a danger zone and must take steps to cut back.
- Buget. Taking the time to come up with an accurate budget to help keep track of your spending makes it easier to come up with a schedule for repaying your debts.
- Be disciplined. Don’t borrow more money or take on any debts until you have repaid what you already know.
- Switch energy supplier and bank accounts. Shopping around for cheaper gas and electricity can save you hundreds of pounds.
- Move your debt onto a 0 per cent balance transfer credit card, which will give borrowers more time to pay off their debt and are interest-free for a set period of time.
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