Saturday 25 May 2013
A Government minister has accused high street banks of ripping off consumers with hidden charges after research commissioned by BBC One's Panorama found customers could face interest rates of 167% on overdrafts.
Panorama presented Mr Cable with the evidence they had gathered that some high street banks were penalising customers with overdrafts with far higher interest rates than those advertised.
The Business Secretary responded by telling Panorama reporter Adam Shaw that banks are not being transparent with account holders.
He said: "Consumers have been ripped off, get a very bad deal, are affected very much by the complexity of a lot of financial transactions that are not transparent."
Research carried out for tonight's Panorama programme (Monday 19 July at 8.30pm on BBC One) found high street banks are charging on average an annual rate of 32% for an authorised overdraft on some accounts despite advertising rates of around 19%.
The research shows that rates for unauthorised overdrafts averaged out at 167% over a year. The figures were reached after fees and other penalty payments were added to the advertised rates.
The fees charged by Barclays Bank for an unauthorised overdraft are equivalent to a 220% annual interest rate while Bank of Scotland's daily fees for those with an unauthorised overdraft took their interest rate to 365%.
Bank of Scotland's parent company, Lloyds Group, received £20 billion in the Government's bailout of the industry.
By comparison, high street rivals Lloyds and NatWest both charged the equivalent annual rate of 19%.
Interviewed for the programme, Vince Cable says a lack of competition on the high street is leading to banks increasing their profit margins.
"When we talk about restructuring the banks, what's going to come out of this is a more competitive system where the customers are not ripped off," he says.
He also attacks the morality of the City over its continued payment of bonuses saying: "I think the bonus culture which continues is unacceptable. The coalition agreement makes it very clear that unacceptable bonuses are continuing and that is something we want to try to stop and that reflects the lack of moral compass."
In tonight's Panorama, reporter Adam Shaw set up his own "honest bank" during the programme which openly displayed all its worst rates to gauge how the public would react to a transparent bank.
The banking sector has come under renewed pressure from the Government in recent weeks with promises of a new tax on transactions – in addition to the planned banking levy – and stringent new rules.
Four main banking groups now dominate the high street: Barclays, Lloyds, HSBC, RBS-NatWest. Mr Cable, Secretary of State for Business, Innovation and Skills, agrees a fair test of the coalition Government's success will be how much competition it introduces into the UK banking sector.
He tells Panorama: "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 a bigger temptation for banks to earn margins at the expense of their customers."
The research on overdraft rates was carried out for Panorama by the financial advisors SG Hambros.
Christine Ross, Group Head of Financial Planning, tells the programme: "What we found is that unless individuals really scrutinise the small print the overdraft rates charged are far higher than they could even imagine.
"Because it's not just the main headline rate that counts but all the other fees that are added in, fees that people possibly wouldn't think about."
Explaining her research she adds: "We took an average of many high street banks and we came up with 32% for an authorised overdraft of five hundred pounds. Now if it's unauthorised... again five hundred pounds, on an annual basis, that would equate to a 167%."
Bank customers also complained to Panorama about the Halifax, which is owned by Lloyds Group Plc, and was the recipient of more than £20 billion from the taxpayer in the bailout in late 2008. Instead of charging interest on its overdrafts the bank is imposing a flat fee of £1 a day. For a customer with a £10 overdraft experts say this would equate to an effective interest rate of 3,650%.
The Halifax said in a statement that customers "want a clear overdraft charging structure" and the £1 a day represents "a simple set of daily fees." The bank said it offered a "buffer zone" for overdrafts of less than £10 that is free and that the vast majority of its customers do not use their overdraft facility.
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