Fees on overdrafts can be almost eight times more than the cost of payday loans, according to new research.
Consumer group Which? found that some bank customers who borrow £100 for 30 days through an unarranged overdraft have to pay £180 in charges, much more than the maximum £24 on a payday loan for a similar period.
About a fifth of current account holders have unarranged overdrafts, which generated £1.2bn of revenue for banks in 2014, according to the Competitions and Markets Authority (CMA).
At a Westminster Hall debate on Wednesday, Labour’s Rachel Reeves will call on Philip Hammond, the chancellor, to bring in a cap on monthly charges imposed by the banks.
She said: “Decisive action was taken to cap the sky-high charges imposed by payday lenders and the same must now be done to limit the charges imposed by the high street banks.”
Ms Reeves said the government should quickly “put in place a cap and enable the [Financial Conduct Authority] to implement it”.
Payday lenders came under fire for charging extortionate fees with annual percentage rates above 5,000 per cent in some cases.
The government legislated in 2014 to impose a cap on what George Osborne, the then chancellor, said were “outrageous fees and unacceptable practices”.
Overdraft fees came under scrutiny last year as part of the CMA’s £5m review into the retail banking sector.
But the CMA said that banks must set their own maximum limit on overdraft fees. The watchdog was criticised at the time for not going far enough to protect consumers.
Overdraft charges apply to customers’ monthly billing periods rather than the number of days over which the money is borrowed, which means customers can be charged for two billing periods.
Which? found that NatWest imposed the highest charges, amounting to £180 for borrowing over 30 days across two billing periods.
NatWest said: “We encourage all our customers to contact us if they are going to enter unarranged overdraft regardless of the amount or the length of time.”
Lloyds Banking Group, Santander and TSB follow a similar policy, charging as much as £160 over the timeframe.
The FCA launched a review last year on whether to cap unarranged overdraft charges. The regulator said it was gathering evidence and planned to publish its findings by the summer.
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