StepChange Debt Charity response to the CMA retail banking market investigation – final report

9 August, 2016

In response to the Competition and Markets Authority’s retail banking market investigation final report, Mike O’Connor, Chief Executive of StepChange Debt Charity, said:

"These recommendations from the CMA will not do enough to get rid of excessive overdraft charges. There should be a cap on unauthorised overdraft charges and it must be set independently by the Financial Conduct Authority, not by the banks themselves. The largest banks already cap charges, but these caps vary widely and are still too high. The CMA’s recommendation may do little to change this.    

“Regulators have to balance promoting competition with protecting consumers. It is vital that promoting competition should not dominate this balance and we believe that setting a cap on overdraft charges can be justified by the need to protect consumers.

“Overdrafts are the second most common type of debt we see and more than half of our clients have an overdraft. Giving people better control over their funds will help some people and alerting them to a better deal is also important, but such measures will not tackle the fundamental issues that people in debt are facing. If someone is already enduring a daily struggle with debt, alerting them to the fact they are about to go into an unauthorised overdraft will not help if they do not have the funds they need to escape the situation.

“Banks need to identify people who are struggling and offer them the assistance they need. When people take debt advice, they should be given ‘breathing space’, which would protect them from interest, charges and enforcement while they receive advice and enable them to put in place a comprehensive solution to their debt problems. If banks also proactively offer basic bank accounts to those who need them, people can separate their debt problem from essential day-to-day banking.

“The CMA does recommend that the FCA undertakes further work to increase customer engagement with overdrafts. It is vital that this goes further and the FCA works to address the widespread problem of the role of overdrafts in problem debt, specifically the issue of persistent use of both authorised and unauthorised overdrafts.”

StepChange Debt Charity overdraft stats from 2016

• Overdrafts are the second most common debt type we see (after credit cards) – more than half of our clients have overdraft debt (52.8%)
• The average overdraft debt is £1,679