Labour pledges caps on overdraft fees and interest repayments
Interest repayments and overdraft fees will be capped under a Labour government, shadow chancellor John McDonnell has announced.
McDonnell said he wanted to end the “national scandal” of low paid families trapped in debt, while Labour said the policy could help 2.7 million people who are stuck with permanent overdrafts, saving consumers £233m annually.
According to Labour, people stuck with permanent overdrafts use them more than 85 percent of the time while incurring higher charges.
The party also said overdraft charges could be up to four times higher than the equivalent borrowing from payday lending.
McDonnell said: “Too many families are having to rely on borrowing just to get to the end of the month, and are facing huge costs from our high street banks.
“The national scandal of the low paid debt trap has to end. More needs to be done to level the playing field and bring greater fairness in consumer finance.”
The existing payday lending cap provides for a maximum daily interest charge of 0.8% of the amount borrowed – equivalent to £24 per month per £100 borrowed and also caps total costs at 100% so that no borrower using payday loans will ever pay back more in interest than they have initially borrowed.
Labour is proposing this cap is extended to overdrafts and interest repayments. The proposal was welcomed by the actor and founder of the campaign group End High Cost Credit Alliance, Michael Sheen.
Sheen said: “High cost credit is more than just pay day loans, rent to own businesses or doorstep lending. Millions of people across the UK are also trapped in their overdrafts by extortionate rates of interest charged by reputable high street banks.
“As founder of the End High Cost Credit Alliance I want to see a future financial landscape that takes all of this into account and keeps us moving in the direction of an ever-increasing fairness. Right now there are at least 2.7 million people who urgently need our help in delivering a fairer system.”