The Financial Conduct Authority’s decision to introduce reforms to the overdraft market should help thousands of people from getting trapped in a debt spiral, Citizens Advice says.
Citizens Advice helped almost 30,000 people with overdrafts last year. It is one of the most common consumer credit issues we help people with. Last year we supported 24,000 people struggling to repay their overdraft. Nearly 3,000 people had problems specifically related to overdraft charges.
Overdraft issues overwhelmingly affect socially-disadvantaged people and of the people who came to us with a problem last year:
- 2 in 5 had a disability or long-term health condition
- 2 in 5 had a monthly income of less than £1000
- 1 in 5 were from a BAME background
- 1 in 4 were single parents.
In December 2018, Citizens Advice responded to the FCA’s decision to ban unarranged overdraft fees. It also provided evidence to the regulator’s overdrafts consultation in March 2019.
Gillian Guy, Chief Executive of Citizens Advice, said:
“Overdraft charges can have serious knock-on effects for people’s debt and mental health. These new rules should help thousands of people from getting trapped in a debt spiral.
“Many people who seek our help with overdraft problems have had trouble understanding the way the fees are calculated. The FCA’s changes will simplify charging structures and lower the cost of these products for consumers.
“If, after these measures are introduced, people still pay over the odds, the FCA should review the need for an interest rate cap to ensure no one is paying back more than twice what they borrowed.”