11th June 2019

Ensuring overdraft rules work in practice is the challenge, says StepChange
Opinion

Around half of StepChange Debt Charity clients have accumulated overdraft debt, on an average of over £1,500, at the point they seek debt advice. Generally, clients with overdraft debt surveyed by StepChange in 2016 had been in their arranged overdraft 11 out of the last 12 months. Almost two thirds of StepChange clients with overdraft debt had regularly had to exceed their arranged overdraft limit, doing so in an average of five out of the last 12 months.

Commenting on the Financial Conduct Authority (FCA) following through on its commitment to introduce wide-ranging reform of overdrafts, Peter Tutton, Head of Policy at StepChange, said: “The FCA is absolutely right to point to the harm that getting stuck in expensive repeated overdrafts can cause.

"Our own research shows that around half our clients have accumulated overdraft debt at the point they turn to us. So while it’s disappointing that the rules prohibiting harmful unauthorised overdraft charges will take a bit longer, we are delighted that the FCA is turning the page on a long-standing cause of hardship for struggling households.

"The challenge now is to make sure the steps to help customers get out of expensive overdraft debt work in practice. In the credit-card market, the effectiveness of the remedies required by the FCA is not yet proven in practice.

"In the overdrafts market we would therefore like the regulator to be more pro-active and ‘fleet of foot’ in identifying and refining the specific, practical steps banks should be taking to help customers escape the overdraft trap more quickly, and to break the cycle of repeat use of overdrafts.”