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Cable declares war on "rip off" accounts

20 July 2010

Business secretary Vince Cable has pledged that the government will be tackling the scourge of "rip off" current accounts that charge heavily for overdrafts.

The minister gave the pledge when interviewed by the BBC, whose Panorama programme discovered in an investigation that unauthorised overdraft charges have risen to as high as 167 per cent.

It also found the average authorised overdraft costs 32 per cent in interest, despite the advertised figure being 19 per cent, suggesting the hidden details in the small print are costing some bank customers dear, a situation that could prompt many people to seek a better deal elsewhere.

Mr Cable said a lack of competition has led to the current problems with charges and restructuring the system will involve creating an environment where this can no longer happen.

"One of the negative side effects of this crisis is that our banking system that was already very concentrated is now even more concentrated so there's less competition, less choice and bigger temptation for banks to earn margins at the expense of their customers," he explained.

Panorama found that Halifax customers were among the most happy, with an effective £3,650 per cent interest charge for an overdraft of £10, due to its policy of charging a flat fee of £1 a day for using it.

Responding to Panorama, the British Bankers' Association denied its members have been operating a "rip off" culture or deliberately misleading consumers about charges.

Arguing that information about terms and conditions is readily available, it stated: "Banks have no desire to hide the cost of borrowing from their customers."

It also noted most people do not use their overdrafts regularly and simply have them as an occasional emergency facility for short-term budgeting requirements, suggesting those who need longer-term borrowing should take out loans instead.

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