Should banks end unauthorised overdraft charges?
Sarah Coles is a personal finance analyst at Hargreaves Lansdown
The current system hits the most vulnerable people hardest. When someone is already struggling with debt, charges of as much as £95 a month risk pushing them further into the red and making it even harder to claw their way out.
Of course, the problem with squeezing one kind of charge means risking a rise elsewhere. It is therefore essential that banks which drop fees don’t just hike their overdraft rates – trapping the same vulnerable people in a slightly different way.
When this issue is raised, you often hear of the risk that banks will respond by charging for all current accounts, but we’ve already seen some movement on unauthorised overdraft charges – from Lloyds, for example – without this happening.
Instead, we’re seeing more differentiation in the current account market, which choices between simple, free accounts, or a paid-for account packaged with anything from insurance to higher interest and cashback.
This is an opportunity to ensure that people pay charges when they can afford them, rather than simply hitting those who can least afford it.
George Pickering is a fellow in residence at the Ludwig von Mises Institute
While no one wishes to live in a society where low-income people are regularly caught in spiralling debt due to unexpected overdraft charges, it is essential to consider the causes of this problem before rushing to treat its symptoms.
Thanks to the state’s imposition of burdensome regulations and artificially low interest rates, banks find themselves in an environment where they have to seek out ever more risky and antisocial profit opportunities to survive.
The current spread of overdraft charges is just another outgrowth of this underlying problem – the same problem which caused the boom in sub-prime loans before the 2008 crisis.
While it would be tempting to simply prohibit banks from charging unauthorised overdraft fees, this failure to address the root of the problem would guarantee its re-emergence in the future, and the unintended consequences of such regulation would further harm our economy.
If the government truly wants to solve this problem, it should hesitate before regulating, and first look in the mirror.