Kevin Hollinrake MP, the co-chairman of the All Party Parliamentary Group on Fair Business Banking, has called for regulatory action to protect consumers.
Mr Hollinrake, Conservative MP for Thirsk and Malton, told the House of Commons; “The rates that banks charge on personal loans and overdrafts are not coming down, despite the reduction in base rate, in fact, quite the opposite.
“The Financial Conduct Authority, in its wisdom, decided that everyone who had an overdraft should pay the same whether it was an authorised overdraft or an unauthorised overdraft.
“It told the banks that they could not penalise people for unauthorised overdrafts, so everyone has to pay the same. The rate for authorised overdrafts used to be somewhere between 3 per cent and 15 per cent, and unauthorised overdrafts used to have a fixed daily charge and a much higher rate. So the banks made them all the same.”
Mr Hollinrake said that some banks were charging rates of 39.9 per cent for authorised and unauthorised loans.
He added: “It is simply disgraceful. Everybody is paying the higher rate. It smacks of a cartel, as well as profiteering and overcharging.“
Afterwards, Mr Hollinrake said: “The FCA should suspend the proposed new rules and reconsider their approach.”
A spokesperson for UK Finance, which is the trade association for the UK banking and financial services sector, said: “Firms are working hard to support customers through these unprecedented times and are continually assessing ways in which they can support customers’ finances through the products and services they offer.”
The spokesperson stressed that the historic pricing of overdraft products was diverse across the industry.
While some firms charged an interest rate, a number of firms used a fixed daily charge for using an overdraft, for example a fee of £2 per day when overdraft borrowing was between £2000 and £3,000, UK Finance added.
The FCA in its published report said that seven in 10 would see the costs of using an overdraft reduce, with the most financially vulnerable benefitting most, the spokesperson said.
Firms have been actively contacting their customers where the use of the overdraft might result in high cumulative charges to discuss options available to them to reduce the cost of borrowing.
The spokesman said UK Finance did not recognise an unsecured overdraft rate of 3 per cent per annum that would have been available generally to consumers in the market.
A Financial Conduct Authority spokesman said it expected firms to treat consumers fairly.
Further information for consumers can be found at https://www.fca.org.uk/consumers/coronavirus-covid-19
Yesterday authorities said banks and regulators must ensure companies that were viable before the coronavirus crisis can keep their doors open after it ends.
In a letter to Britain’s lenders, Chancellor Rishi Sunak joined Bank of England governor Andrew Bailey and FCA chief executive Chris Woolard in calling for well-targeted support.