Rip-off overdraft fees and hire-purchase rates MUST be capped says Government report

EYE-WATERING fees on overdrafts and hire purchase deals must be capped to end the “scandal” of Brits plunging into deep debt, a Lords report tells ministers today.

It warns that nearly two million of the nation’s poorest are cut off from basic banking services without even having bank accounts.

It forces them to rely on unarranged overdrafts that incur crippling fees or rip-off finance deals that charge sky-high interest rates on monthly instalments.

The lack of options means those who can least afford it often end up paying the most to borrow money.

The “rent-to-buy” schemes allow customers to get household goods without buying them outright.

The House of Lords financial exclusion committee said limits on interest rates charged by payday loan sharks had cracked down on their “abusive” practices and similar restrictions should be extended to overdrafts and hire purchase deals.

Its investigation found that the lack of action on high street banks now meant that a borrower needing as little as £100 could be charged up to £156 more by their bank than it would cost at a payday lender.

The cross-party group also calls for new rules requiring banks to have a duty of care to customers to stop the poorest unknowingly falling into debt.

Research found that 1.7million people do not have a bank account, while modern forms of banking is cutting off greater numbers of older people from finance – with more than 600,000 pensioners excluded.

And half of 18-24 year-olds regularly worry about money, the study said.

The committee’s research found people living in east London were the most likely to have sought professional help about debt.

One in ten people living in Newham, Barking and Dagenham had asked for professional debt advice.

And figures revealed that the capital also had the highest proportion of adults with “real financial problems” who had “fallen behind with many bills or credit commitments.

Committee chair Baroness Tyler of Enfield: “The UK financial services sector is a world leader which makes it doubly unacceptable that it is failing those who need it most.

“Too many people still have no bank account or cannot get access to basic or fairly-priced financial services.

“The poverty premium – where the poor pay more for a range of services from heating their home to accessing credit – contributes to a vicious circle driving people ever deeper into debt and distress.”