Banks should immediately end charges for unarranged overdrafts and must ensure that charging structures are clear and transparent, a major debt charity has warned, on the back of a report showing that more than two million people in the UK are stuck in a constant cycle of persistent overdraft debt.
Charity StepChange, in a report published on Wednesday, said that overdrafts are now one of the most widely used credit products in the UK. A total of 2.1 million people spent the whole of 2016 stuck in the red, the group’s research found, with many of them having slipped into overdraft debt to cover essentials like food, living costs and household bills.
“[Overdrafts] are meant to be short-term, but our evidence shows that they can all too easily trap people in expensive and long-term cycles of persistent debt,” said Peter Tutton, head of policy at StepChange.
He said that there had been positive action from some banks to make charging structures clearer and to abolish unarranged overdraft charges, but that fundamental reform is still needed.
“Lenders and regulators must take action [and] need to ensure that overdraft lending is affordable, that borrowers in financial difficulty get the right support and that we break the cycle of persistent overdraft debt,” he said.
A total of 49.8 per cent of the charity’s clients have overdraft debt and owe an average of £1,722. StepChange said that many of those people risk building up more significant debts through the rapid accumulation of interest and charges. The build-up of charges can be particularly acute with unarranged overdrafts, it said.
Last month, separate research conducted by charity Citizens Advice showed that as many as six million people have had their credit card limit increased in the last year without being asked.
That research also showed that people who are least confident that they can pay back their debts are most likely to be given extra credit.