Labour to end 'national scandal' of low-paid debt trap by capping overdraft fees
‘The Tories’ rigged economy has seen real wages fall and insecure work multiply, whilst they hand out huge tax giveaways to the super-rich and the banks’
Labour has said it would bring in a cap on the total amount that can be paid in overdraft fees or interest payments.
Shadow chancellor John McDonnell said the policy would end the “national scandal” of low-paid families being trapped in debt.
The policy would help 2.7 million people currently in their overdrafts and save them the equivalent of £86 a year, the party said.
“The Tories’ rigged economy has seen real wages fall and insecure work multiply, whilst they hand out huge tax giveaways to the super-rich and the banks,” Mr 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.
“Labour will end the misery of permanent debt and extend the cap on borrowing charges to overdrafts. We’ll also introduce a £10 an hour real living wage, and build an economy that works for the many, not the few.”
Under the proposal, the Financial Conduct Authority (FCA) would extend the cap on charges levied by payday lenders, introduced in 2014, to cover the cost of overdraft borrowing.
Charges would be limited to £24 a month per £100 borrowed on any interest payments and charges related to a borrower’s overdraft. This would also cover charges for declined payments.
There would also be a total cap of 100 per cent of the amount borrowed if someone was perpetually or regularly in overdraft debt. This would mean being “either continuously overdrawn or persistently in and out of overdraft with no breaks of longer than one week”.
The policy was welcomed by actor and founder of the End High Cost Credit Alliance Michael Sheen.
He said: “High-cost credit is more than just payday 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.”
A Treasury spokesman said: “We know that families can struggle with debt. That is why we have tightened the rules to ensure that money can only be lent to people who can afford to repay.
“We have also cracked down on pay day loans, saving borrowers over £150.”
Press Association contributed to this report