Ban on unarranged overdraft fees could stop thousands becoming stuck in debt

The Financial Conduct Authority’s decision to ban unarranged overdraft fees could help thousands of people from staying stuck in debt, Citizens Advice says.

The national charity also says the proposed crackdown on the way interest is charged on “buy now pay later deals” will help the thousands of consumers who are rocked by these shock bills.

However, the decision not to cap doorstep loans is disappointing.

In the past 12 months alone, 30,000 people came to Citizens Advice with problems related to bank and building society overdrafts.

The charity’s research found that people with insecure incomes were twice as likely to have paid arranged overdraft fees when compared to those with stable incomes.

It also found more than 1 in 3 people in problem debt paid overdraft fees, compared to just 17% of all UK adults.

Citizens Advice figures also show people who pay unarranged overdraft fees are disproportionately likely to be vulnerable and have other debts.

• 39% of people with overdraft issues have mental health difficulties, as opposed to 24% of the charity’s usual clients.
• 51% of people with overdraft issues also have credit, store or charge card debts.
• 30% of people with overdraft issues are in council tax arrears.

Gillian Guy, Chief Executive of Citizens Advice, said:

“People who are financially insecure have been punished by unarranged and complicated overdraft fees for far too long.

“We have long called for a clampdown on these indefensible charges. . It will help the thousands of people who come to see us with overdraft problems from staying stuck in debt.

“The FCA’s plan to stop the shock of backdated interest in buy now pay later deals is another win for consumers.

“However, the decision not to cap doorstep loans will leave the people who resort to using this expensive form of high-cost credit exposed to spiralling debt.”

Notes to editors

1. Citizens Advice includes the national charity; the network of independent local Citizens Advice charities across England and Wales; the Citizens Advice consumer service; and the Witness Service.
2. Citizens Advice is the statutory consumer advocate for energy and post. We provide supplier performance information to consumers and policy analysis to decision makers.
3. The Citizens Advice Witness Service provides free, independent support for prosecution and defence witnesses in every criminal court in England and Wales.
4. Citizens Advice offers Pension Wise services at 500 locations in England and Wales.
5. Citizens Advice’s services are free, independent, confidential and impartial, and available to all regardless of race, gender, disability, sexual orientation, religion, age or nationality.
6. To get advice online or find your local Citizens Advice, visit citizensadvice.org.uk
7. For consumer advice, call the Citizens Advice consumer service on 03454 04 05 06 or 03454 04 05 05 to talk in Welsh.
8. We helped 2.6 million people face to face, by phone, email and webchat in 2017-18. For service statistics see our monthly publication Advice trends.
9. Citizens Advice staff are supported by over 23,000 trained volunteers, working at over 2,500 locations in England and Wales.